Why are Gas Prices So High?
by Keith Burton - GCN
Sticker shock has long been a part of buying a new car or pickup truck, and now you can add the shock of gasoline prices that exceed the price people paid in the days after Katrina. But is the the American public is being misled over why prices are so high? We think so.
Mississippians and the rest of the nation are seeing the highest prices ever paid for gasoline with prices now over $3 a gallon and climbing. Shortly after Katrina, prices spiked at $2.96 a gallon in September of 2005 when hurricane Katrina was blamed for cutting supplies. There is no such excuse now.
Oil industry "experts" blame the the price increases as seasonal pre-Memorial day run-up on pricing and overall lower production and lower gasoline inventories, but few people believe that is why prices are at record levels.
The average price of gasoline has risen more than eleven cents over the last two weeks nationwide and is expected to continue to rise. Many people feel that consumers are gradually being manipulated to accept ever-increasing prices.
A review of news stories from the major media finds little explanation for the increases other than to encourage people to drive less or to buy more fuel efficient vehicles, that is, to get rid of trucks and SUVs. While more efficient vehicles are one long-range solution, that is not why prices are high right now.
Prices are higher because the industry can charge what they want. Who is there to say otherwise. No one is claiming that gasoline is in short supply. There are no reports of areas of the country that cannot get gasoline.
There are also no state governments complaining that revenue from taxes on gasoline are dropping because people are buying less gasoline. State and federal governments derive a huge income from taxes on fuel. With the introduction of fuel-saving hybrid vehicles in recent years, some state governments have complained that if too many people started actually buying less gasoline, it would damage revenue for roads and highways as most of that money is obtained from taxes on gasoline sales.
A short while ago when the new hybrid vehicles began to sell in large numbers, there was a chorus of concern about how such vehicles would affect state revenues. In California for example, legislators even considered revising how road taxes are obtained by initiating a "mileage tax" on the total number of miles people drive as way to offset a reduction in taxes collected from fuel. Even in Mississippi, officials with the Mississippi Department of Transportation have been concerned that if people start buying less gasoline, they would pay less taxes.
One expected result of the ever increasing cost of fuel is that people will eventually start using less. Today's vehicles are among the most fuel efficient ever produced. What is actually occurring is that there are simply more vehicles on the road, aided in part by the high level of illegal immigration.
Government at every level has also failed to reduce the waste in fuel use. Some transportation experts say if the nation's cities would better regulate traffic signals and road use, billions of gallons of gasoline could be saved. But there has been little effort by government officials to fund studies and implement results to do this.
While there are certainly ways that individuals can reduce how much fuel they use, the fuel will still be used regardless of how people cut back. It is a myth that by cutting how much a person uses that this would "save" fuel. All of the gasoline produced will be used by someone somewhere. The public is being misled, and government and many in the news media are an accomplice to the oil companies in this.
Oil companies are experiencing record level profits. There is no real shortage of fuel. The rise in prices isn't a result of supply and demand, or market forces. Much of the oil industry has been consolidated into ever larger corporations. There is not enough competition in the oil and gas industry for true market forces to work.
The Katrina spike for fuel was a great lesson for the oil companies as it showed that Americans would tolerate higher prices. Prior to Katrina, most of the nation's refineries operated at around 98 percent of capacity. Since Katrina, refineries are operating at significantly less capacity, with the companies blaming maintenance and mechanical troubles as the problem. It is important to remember that there has been no new refineries built in the U.S. in nearly 30 years.
What the huge profits that the oil industry is reporting shows is that they are not rebuilding or returning some of those monies back in to infrastructure and production. Even if Americans were to cut fuel consumption by 15 percent, under current oil company practices, they would find reasons to cut oil refining capacity to maintain higher prices, and this methodology not only affects gasoline prices, but home heating oil.
The truth is that the price of gasoline is more closely tied to the value of the dollar, which is the currency of use for purchasing fuel worldwide. Recent fluctuations in the value of the dollar in relation to other currencies is part of what is involved now.