Pain in the Gas

If you’ve filled your tank lately, particularly this week, you’ve already had historically high gas prices inflicted on you. Surely everyone is aware of the price at the pump, regardless of whether you drive, walk or cycle to work daily. Talk of gas prices have been in the news quite a bit again this year after fading from popularity for a while, and for good reason: Ottawa gas prices have soared over the last week as high as $1.35 a litre, and in the US almost $4.00 per gallon. Filling your tank is costing you more than it ever did, and many are choosing to simply not drive as much. Even so, the price at the pump is having an impact on the cost of other items as well, as transportation and shipping costs impact the cost of food and other consumer goods. It seems you can’t escape astronomical fuel prices, whether you are a driver or not.

Many of us just suck it up and accept it as a necessary evil. I mean, I have to drive to get to work, and I have to eat, so I have no other choice than to purchase fuel and deal with the prices of items impacted by the cost of gas. I may not like it, but it’s outside of my sphere of influence as well. The best I can hope to do is be a little more frugal with my spending and limit my driving a little so that I don’t have to fill up as often, and maybe try and choose a day when my luck is better and the price is a little lower. I can complain that it’s gouging, but is it? Are the prices just a sign of the times?

Doing a little research, one can come to the discovery that the price of gasoline is always associated with the price of crude oil. Anything that can disrupt oil production in even the slightest way seems to cause gas prices to spike. Terrorist threat? Gas spike. Natural disaster? Gas spike. Politcal unrest? Gas spike. A cricket farts in the wind in the Middle East? Big fat gas spike.

The political turbulence in Libya is being blamed for the most recent spike in gas prices, but none of that really makes much sense, does it? Yes, Libya produces oil. Libya is the 17th largest producer of oil in OPEC. They represent about 2-percent of global oil consumption.

2 percent.

So, does the fact that Libya is experiencing serious political problems and violence which is leading to a massive decrease in Libyan oil output sound at all like a reasonable excuse for oil prices to spike, and gas prices to do likewise? Hardly.

And, maybe this is the excuse we are hearing for the increase in the price of crude oil, but does it really fully explain the increase in the price of gasoline? Adjusted for inflation and set at 2011 dollars, the greatest spike in history for the price of oil occurred in June of 2008, when oil reached a price of $126.54 per barrel in US dollars. The price today for crude oil is $101 per barrel in US dollars. And yet we are paying more today for gasoline than we ever have! Oil is 20-percent cheaper than it was in 2008, and we are paying more for gasoline than we were back then!

A professor of economics was on the radio yesterday, and faced a barrage of questions about the reason for the high prices. He was asked about tax; yes, federal and provincial tax represents about 30-cents on the litre out of the prices we are seeing. Harmonized sales tax? Sure, it impact the price by maybe 8 or 9 cents per litre. We’ve already discussed the price of crude and shown that it is relevant, but only marginally so. So, what’s the reason behind it?

Companies wanting to make big, fat, obnoxiously large profits.

Simply, greed is milking you and I dry every time we pull into the gas station. And, it isn’t greed from the gas stations. They only make 2 or 3 cents per litre. This is purely the greed of refineries and the oil industry. They know we rely on them to keep us moving, there is very little competition at their level, and so they can set whatever price they think the market will bear and rake in the enormous profits that are announced every so often, profits that are measured in billions of dollars. As the professor put it, there’s simply nothing to be done for it because without any real competition the refineries can set the price however they like. And, since we’re so tied to transportation for everything in our daily lives, we have no choice but to go along with it.

Sure, some talk about purchasing cars that are more economical. And, that’s good in its own right. Maybe the auto industry will finally feel enough pressure to produce cars with real fuel economy. The technology and ability exists, it’s just never been a focus for the automakers.

But, we’re still going to drive. And, so long as we drive, we’re using fuel and submitting to the predations of the refineries.

A lot of people want the government to get involved, but that’s a little bit of a red herring. Realistically, lowering taxes related to gas would help a little at the pump, but the government would have to find someplace else to drag the money out of us. It’s a simple reality that most voters fail to recognize that the only way for the government to spend money on the things we want them to do is for them to have the money in the first place, and that means taxes. You can’t cut one without cutting the other.

Any kind of regulation of the oil industry would take a massive amount of effort from government, and likely wouldn’t be possible unless other nations got involved and joined the effort. It could happen, but there are so many countries led by governments that are supported by the oil industry in some manner that I would consider it highly unlikely.

Anyways, what the hell do we do?

I know I can’t simply stop driving. I can elect not to go on trips that maybe I would have gone on a year or two ago. I can limit the amount of commuting I do, if it’s possible. Companies could start embracing technology and more progressive workspaces and allow people to work from home, or closer to it. We can support local industry rather than outsource to foreign nations that have lower wages. In short, there are things we can do to make ourselves less tied to the refineries. And, when demand goes down, so does price. That’s the basic economical principle, right?

Maybe if the prices at the pump continue to soar some of these ideas can become reality. Sometimes it has to hurt before you stop and change direction. Until then, some fat old oil executive is sitting back and smiling as he watches a gold-plated swimming pool get installed in his fourth mansion.

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