- WEB EXCLUSIVE
- PE COFFEEHAUS
According to the EIA, the average price of gasoline for all grades as of May 2, 2011, is $4.014. You may notice that the price is out to three decimal places, which reflects how gasoline is sold at the wholesale lever. However, by the time it gets to the retail level, it is never a 3 or a 6 in the last number. It is always a 9 and we consumers are conditioned that when we quote a price for what we see at the pump, we also ignore that last digit.
There is a never-ending supply of opinions on how to lower the price of gasoline at the pump. I must get at least three messages each day. Here is a sampling of the ideas that have come to me:
- Fix the prices at the pump. I think President Carter tried that with terrible results.
- Drill baby drill. I think President Bush tried to get that approved.
- Have Congress drop all gasoline taxes. Nobody in Congress seems to want to lower taxes.
- Release the oil stored in our strategic reserve. I think President Obama said he was going to do that last month.
- Raise CAFÉ levels to 60 miles per gallon.
- Institute another Cash for Clunkers program.
I will respond to the final two ideas at the same time. The last time we paid consumers to turn in low mileage cars and trucks to buy higher mileage vehicles did what they said it would. It increased the national average mileage significantly and lowered gasoline usage. So, we are using less fuel. The prices are not coming down.
The last time pump prices were at this level was 2008. No, I am not going to trade barbs about inflation impacts or any of that nonsense. When that happened, the price of a barrel of oil was about $147. Right now, the price of a barrel of oil is $110. Obviously, it would seem the correlation between the price of oil has little to do with the price at the pump. I would invite you to go to this EIA link to view that raw data from the government. We have more petroleum products in stock now than in 2008. The refinery percent utilization is down about four or five percent. That makes some sense since we are not consuming as much. I am betting the refineries don't want to run at higher efficiencies because that would increase stocks more and lead to lower prices. Only consumers want that to happen. There is enough data at this website that I am sure any statistician worth their salt could prove anything they want to.
In the end, I would bet that there are many liberals in Congress that are secretly trading high-fives behind closed doors over the current prices at the pump. More than one paper has been published proclaiming the need for high prices to lower demand. However, these same people are saying in public that we need to bring the prices down to save our economy from a second dip. Did anybody notice that the wholesale prices for oil and gasoline took a huge drop of around 15 percent this past Thursday? However, on Friday, Goldman Sachs released a press announcement that they had expected such a drop and it would only be temporary and prices should quickly resume their upward trend. They obviously knew something you and I did not because prices immediately turned and have eclipsed earlier levels as of today.
The truth is that we are helpless. The more government pushes, the higher the prices. The more environmental groups press the issues, the higher the prices. I don't think we can just leave them alone. Just as with any too large corporation, the large oil companies would take advantage and more damage would ensue. History shows that oversight is required. I think we need to treat them as we would a petulant child with ADHD. We take away the candy (subsidies and tax breaks) and guide them carefully along while taking obstacles out of their path so they can build more refineries and capture more product responsibly. At the same time, we continue to work to find reliable alternatives. How many times have we said there is only a finite supply and it will soon run out? With plenty of gasoline product on the market, prices will lower and it will not be cost effective to go after the tougher resources and the oil companies will naturally atrophy. I bet the alternatives will naturally develop their own market segments.