ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Why are Gas Prices STILL so High?

Updated on September 22, 2011

Crude Oil is way down why are gas prices still up?

Gas prices are still very high compared to the cost of crude oil. As of today (depending on when you read this the Absolute Price may not matter, but the concepts will) crude oil has dropped to $80.51 per barrel with a USA Average of $3.556 per gallon retail at the pump. For Oil a barrel is 42 us gallons which yields a crude oil cost of $1.92 per gallon.

But here is a major catch. Most people think of companies like Exxon as the producers of the oil... and in some regard they are... but they do not produce near enough crude to match their demand for refined petroleum. This means they are not just producers but CONSUMERS... they must buy the difference at the market rate. I'll get to that a bit later...

For now consider the cost of Gas in the State of California

In addition to the higher cost of this cleaner fuel, there is a State sales tax of 2.25% on top of an 18.4 cent-per-gallon Federal excise tax and an 35.30 cent-per-gallon State excise tax.

The Federal and State Government are the big "winners" in the Profit made from Gas. They do not produce the product but ad an astronomical "cost" to the finished price in the forms of taxes and fees (Hello Regulations) which can add up to an astounding amount... nearing 1/3rd!

Note: This information is publicly available online at the Federal Governments US Energy Administration Website: http://www.eia.gov/energyexplained/index.cfm?page=gasoline_regional I am choosing not to "hardlink" to the page as Government Websites tend to change a lot over time and I do not want a broken link... this information is easily to find in any search engine..

The Government Role in the Price of Gasoline

  1. Taxes - Federal and state governments each place excise taxes on gasoline. There may also be some additional taxes, such as applicable state sales taxes, gross receipts taxes, oil inspection fees, underground storage tank fees and other miscellaneous environmental fees. Add that to the state excise taxes. Federal Gasoline Tax is currently 18.4%
  2. Environmental Programs Add to Cost of Production, Storage, and Distribution. Some areas of the country are required to use special “reformulated” gasoline with additives to help reduce carbon monoxide, smog, and toxic air pollutants that result when gasoline is burned or when gasoline evaporates during fueling. Other environmental programs put restrictions on fuel transportation and storage. These programs tend to add to the cost of producing, storing, and distributing gasoline. About a third of the gasoline sold in the United States is reformulated. Each oil company prepares its own formulation to meet Federal emission standards.

At the current retail price of Gasoline at the time of this writing $3.556 x 18.4% = 65.4 cents per gallon PURE profit to the Federal Government alone.

Back to the Oil Company Costs - According to the same EIA

  • 74% - Cost of Crude to the refiners bottom line
  • 11% - Taxes
  • 10% - Refining
  • 5% - Marketing and Distribution

Even though many oil companies are reporting record profits, many people forget just how expensive it is for energy companies to engage in the oil business. The average net profit margin for the S&P Energy sector, according to figures from Thomson Baseline, is 9.7%. The average for the S&P 500 is 8.5%. So yes, energy companies are more profitable than many others...but not by an inordinate amount. - CNN Money

What about Other Industries Profits?

Most people would be surprised to learn that Oil Industry profits are only average compared to other industry.

Highest Net Profit Industry

Forbes Magazine July 2011
Forbes Magazine July 2011

The Rest of the Profit goes to...

Retail Gas Stations

They have to make their markup of course but everyone already knows this.

Transportation and Distribution

The Gasoline has got to get to the Station and this incurs a cost of course.

Speculators

Ah the most profitable industry in the USA the Financial Services drive the price up through their own speculation.

Summary what was the Point of this Article

The point was to help people to understand that the Big Bad Oil companies are not to blame for record high prices. There are many factors that play into the cost of Gasoline. Sure the Oil Companies make a profit and on the surface it may seem unbelievable that someone like Exxon Mobile can make $9 Billion in a single quarter. But when you take into account the massive volume of product sold and the net profit margins it's good, but it's not that great.

The Federal Deficit was about 1.5 Trillion (And for those who do not know what a deficit is... it's the amount of money spent above and beyond what is taken in.. for example if the US Budget was $4.5 Trillion and they only took in $3 Trillion there would be a Deficit of $1.5 Trillion which gets added to the National Debt.). So in perspective the USA Borrowed about 35 times more money last year than all of Exxon-Mobiles profits. And Exxon is the biggest oil company profit wise!

The Government is the BIG WINNER in the Oil Industry. They have ZERO INCENTIVE to do anything to lower the price of Gasoline because they collect so much tax from it. Citizens be damned, the people running the Country do not care about you and do not care that record high gas prices are killing the Economy (One of many things) because money spent on Energy can not be spent anywhere else... and the Government does not count Energy Costs in the core inflation index. That is messed up.

So as to not turn this into a ramble about inept Government or a Defense of Oil Industry Profits... I'll end this now. If you learn anything from this short article... it's to think of a problem as a whole and not be a BANDWAGONER who demonizes American Business because they turn a profit. Where would we be without the Oil Industry?

Comments

Submit a Comment

  • Pamela99 profile image

    Pamela Oglesby 

    6 years ago from Sunny Florida

    Very informative hub. I knew percentage wise the oil companies weren't making what people thought but I think most people don't have a clue about the other costs involved.

  • A M Lehrer profile image

    A M Lehrer 

    6 years ago from Southern United States

    This was a very informative hub. This is not my usual subject but you made it clear and easy to understand. It is wise to see how these industries work together. We should be more knowledgeable on such topics especially if we're going to complain about them! Thanks for the info!

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)