The Real Beneficiary Of High Gas Prices

The Democrats have continued to use high gas prices as a key part of their new populist agenda and class warfare. They pose at the pumps, decry the “windfall profits” gleaned by Big Oil from consumers, and promise more government intervention as a solution. However, as George Will points out, government creates more of the problem than Big Oil:

Pelosi announced herself “particularly concerned” that the highest price of gasoline recently was in her San Francisco district — $3.49. So she endorses HR 1252 to protect consumers from “price gouging,” defined, not altogether helpfully, by a blizzard of adjectives and adverbs. Gouging occurs when gasoline prices are “unconscionably” excessive, or sellers raise prices “unreasonably” by taking “unfair” advantage of “unusual” market conditions, or when the price charged represents a “gross” disparity from the price of crude oil, or when the amount charged “grossly” exceeds the price at which gasoline is obtainable in the same area. The bill does not explain how a gouger can gouge when his product is obtainable more cheaply nearby. Actually, Pelosi’s constituents are being gouged by people like Pelosi — by government. While oil companies make about 13 cents on a gallon of gasoline, the federal government makes 18.4 cents (the federal tax) and California’s various governments make 40.2 cents (the nation’s third-highest gasoline tax). Pelosi’s San Francisco collects a local sales tax of 8.5 percent — higher than the state’s average for local sales taxes.
Pelosi and others who just know, evidently intuitively, the “fair” price of gasoline must relish what has happened in Merrill, Wis., where Raj Bhandari owns a BP gas station. He became an outlaw when he had what seemed, to everyone but the state’s government, a good idea. He gave a discount of 2 cents per gallon to senior citizens and 3 cents for people who support local youth sports programs.
But Wisconsin’s Unfair Sales Act requires retailers to sell gasoline for 9.18 percent above the wholesale price. The state’s marvelously misnamed Department of Agriculture, Trade and Consumer Protection has protected consumers from Bhandari’s discounts by forcing him to raise his prices. Some customers now think he is price gouging.

Minnesota has the same kind of price controls on its gasoline sales. I believe the threshold here is 8% above wholesale, but it’s the same problem. I assume this hearkens back to the bad old days of Standard Oil, which used to underprice its gasoline in new markets to bankrupt its competitors and then jack up the prices in a monopoly market. However, it no longer applies to today’s market, and these laws wind up forcing consumers to pay more — in fact, to impose a profit margin three times higher than normal.
As Will points out, gasoline itself carries about a 3% profit margin for oil companies. That’s about 13 cents a gallon at today’s prices. (Their overall profit margin is less than 10%, which puts it slightly behind most other consumer-product industries.) Will demonstrates where the rest of the money goes. In the example given, state and federal governments take 58 cents from every gallon, or four times what Big Oil gets in profit. San Francisco takes an additional 8.5% in city/county sales tax, which on $3 per gallon would be another 25 cents.
Since the government bite is based on the sales price as a percentage, the government gets more as the price goes up. Not only that, but now the government wants to impose a “windfall profits” tax on an industry that doesn’t have windfall profits, making the government an even larger beneficiary of higher prices, and guaranteeing that prices will continue to rise as the money for further investment gets siphoned off to Washington DC.
Who has to pay that bill? You and I do. Unless you hide your money in your mattress, you probably own Big Oil — through your retirement funds or 401Ks. You and I have invested in these companies so that we can retire on the proceeds of their growth over the long term. Stripping away profits from the industry will cripple their ability to deliver on that growth, and the tens of millions of us who have relied on those investments to retire may find out that we have lost ground to compounded inflation rather than gained it through compounded interest.
The price of oil and gasoline comes from very clear and very simple supply-and-demand factors. Conspiracy theories do not address the real issues, and politicians who enable conspiracy thinking either don’t have the candlepower to recognize this or are exploiting the weak-minded for their own purposes. Perhaps the people of San Francisco should ask themselves into which category Nancy Pelosi falls.

37 thoughts on “The Real Beneficiary Of High Gas Prices”

  1. And I still don’t understand: Oil prices drop, gas prices go up, Government is guilty.
    But there is one thing for certain: there is absolutely no “mutual understanding” between oil companies how to tweak the system, ever.
    Well, if I was an oil company I surely would want to maximize my profit, but hey, it is just me, a clearly criminal mind…

  2. It’s also worth noting that the oil companies don’t set the price. They can manipulate it to some degree by withholding or increasing supply, but it’s the futures traders and “market makers” who set the price by competitive bidding. Which is the reason the Europeans want to change that market from one denominated in dollars to one that’s euro-based; they think that if the trade is under their control they’ll be able to manipulate it to our disadvantage.
    Regards,
    Ric

  3. It’s also worth noting that the oil companies don’t set the price. They can manipulate it to some degree by withholding or increasing supply, but it’s the futures traders and “market makers” who set the price by competitive bidding. Which is the reason the Europeans want to change that market from one denominated in dollars to one that’s euro-based; they think that if the trade is under their control they’ll be able to manipulate it to our disadvantage.
    Regards,
    Ric

  4. You also forgot to note the special gasoline formulation demanded by the Government for San Francisco and certain other cities. That in itself causes significantly increased prices (for the special refinery production runs) and an absolute nightmare of distribution problems, further inflating costs.
    If the people of San Francisco really want this leadership, then maybe they simply shouldn’t drive. You can’t be “unconscionably gouged” by the price of a product you don’t buy. As a bonus, the price would then drop for the rest of us.

  5. Do you really expect folks to believe that left wing high tax democrats are responsible for high gas prices????????

  6. You also forgot to note the special gasoline formulation demanded by the Government for San Francisco and certain other cities. That in itself causes significantly increased prices (for the special refinery production runs) and an absolute nightmare of distribution problems, further inflating costs.
    If the people of San Francisco really want this leadership, then maybe they simply shouldn’t drive. You can’t be “unconscionably gouged” by the price of a product you don’t buy. As a bonus, the price would then drop for the rest of us.

  7. Go ahead and drive “Big Oil” stock values down. Then watch the Dems cry foul when the Russians or Chinese try to buy them up.

  8. Democrats lie five times before they brush their teeth in the morning.
    Last summer, the Republican Congress was pelted with rocks by the media and the Democrats, because of high oil prices.
    So now the Dems are in office? Of course, they aren’t being blamed for anything (because they are blameless Democrats), but they aren’t going to be able to do anything other than whine about it.
    Another day, another Democrat promise, going down the tubes.

  9. Let’s not forget that the IRS collects 35% of profits as well, so if the Net Profit is $0.13 then the fed collects another $0.07 per gallon

  10. Let’s take a look at the high price of gasoline and parcel out the blame by per cent. With a less than 10% profit margin, Oil Companies come off as minor villains. The various governments rank high because of their unconscionable rake off of somewhere between 35 and 50%. Distributors, transporters, refiners, etc. provide the other 55%.
    Now, the last new refinery in the USA was built in 1976. We as a nation are sitting on massive oil deposits off shore and in Alaska. Liberal environmentalists have done a great job of placing these resources off limits to us. Lord knows, there are enough villains to go around, but when we factor in the necessity of oil for our defense, we would probably have to give the satanic horns of villainy to these environmentalists and their politicians.

  11. The basic cause of high gasoline prices is the failure of our so-called leaders to develop a comprehensive energy policy. This failure of leadership has been going on for over 50 years starting with the first oil embargo in the mid 1970s.

  12. Rather than just continue to roll over, oil companies should subsidize stations to install pumps that separately displayed the tax due. When someone pumps $50 and sees that a significant portion of that is tax, they’ll take notice. I won’t relieve the ‘evil oil companies’ completely, but at least they’ll have company.
    Hey, when I buy most everything else, the tax is shown separately. Why not on gas?
    Kinda like why payroll taxes come out every check, rather than having to write a huge check on Apr. 15. Seeing the reality in black and white (or glowing green) focuses the mind!

  13. Pelosi is calling for July 4th to be Energy Independence Day for all of us, so I’ll bet gas will fall $0.50 per gallon. What a leader!!!

  14. I’ve finally figured it out: to determine if someone is a liberal, test them to see if they understand basic economics, like supply and demand. If they don’t, you’re likely talking to a liberal.

  15. I do know in Nevada that there is a sticker that shows how much you pay in taxes. Last I looked I think it was in the 50-60ยข/gallon range.
    Glad you posted this, now I have a discussion on another site I can use this with… Keep up the good work…

  16. As a corollary, Anthony, if you want to find out just how ignorant someone is, ask them about energy.
    Usually the dull of wit expose themselves by the second sentence.
    For example, pretty much every Democratic politician. Unfortunately, they’ve been hard at work with the teachers’ unions for over thirty years, busily constructing an education system which turns out uneducated, non-thinking drones without the intellectual training to question their demagoguery.

  17. I’m glad that Ed’s out here educating people on the truth of the matter: gasoline is purely supply and demand.
    We refuse to allow oil companies to create new refineries. We refuse to let them drill in ANWR. We insist on strict environmental regulations that vary greatly from state to state, requiring different refinery products. We insist on driving SUVs. And at every step of the way, the politicians are there collecting their cut of the profits.
    Yes, oil companies donate to politicians. But states are more than willing to increase taxes every chance they get in order to make money.
    Eliminate or lower state taxes. Eliminate the federal gas tax. Allow refineries and drilling. Politicians have a vested interest in reducing supply to keep prices high, to make billions in tax revenue.
    Those record oil company profits? Reinvested in capital. And they aren’t from gas.

  18. who can forget that while pelosi herself has never mentioned it, her crew has previously called for a 50 cent a gallon special tax to curtail consumption. they don’t mind high prices as long as the benefits roll into government coffers. once there they can then pretend to give back, through their “enlightened leadership” benefits to those that truly need it–like their constituents. as winston churchill famously quipped—“government never gives you anything it hasn’t previously taken from you”.
    as for gas prices being high that’s another canard. aside from a few wacko kingdoms, the US has the world’s lowest fuel prices. they would be even lower still if we drilled and refined more. the dirty little secret is the states love high gas and home prices which generate even higher tax receipts.
    a simple way to view all political carping is to figure that it is being made solely to create a new tax to remedy a problem that they themselves created. not a bad gig if you can get it!

  19. Some of the previous comments make sense, some do not. Prices generally posted in news are the “spot” market prices, not the real price paid, which are the 90 day futures. Spot market prices are always higher and appears to be the driver of the prices. They go up, then prices at pump go up, even though the oil prices really paid are lower and the product is not really gotten for about 90 days.
    Also at play are speculators who are buying futures, wait until price rises then sell the futures, causing another spike in prices.
    What is being missed is the fact that the higher priced oil has not yet been refined, nor is it in the pumps, yet the prices have gone up dramatically. , sometimes as much as .10 a gallon in one day.
    Don’t tell me “market conditions”, it is “lets get the extra money now, because when the higher gas really hits the market, and the spot market is down, we have made money, consumers are used to the higher prices, and we can lower them a little and make us look good.”

  20. There are several factors at work in the price of oil.
    First – the high price of exploring, developing, and delivering product to market.
    ARCO spent years exploring the the coasts of Japan and racked up a billion dollars in exploration cost. Not a single drop of oil was found.
    Developing known sources of oil is hampered by government interference, war and factions.
    Second – Gasoline formulation and refining cost are going up. As states and cities demand lower pollution the cost and complexity goes up higher. Furthermore – the differences in formulation often make it impossible to reliably deliver a uniform quantity of product to disperate markets.
    Case in point – there are over 200 formulations of gasoline destined for thousands of markets. Distributors aren’t allowed to sell the same product across a large area. Over production of one product leads to higher prices of the entire market as any “shortage” is viewed as an industry shortfall instead of a single market issue.
    Also – the speculative natire of “Market Makers” doesn’t reflect the true demand trends. The buyers (refineries, distributors, and consumers) are forced to buy at whatever price the market sets.
    And lastly, oil producers have little incentive to price their product lower because our trade with these producing nations is lop-sided. We have no way to pressure lower prices because often times their competitors are just as bad.

  21. One thing that’s working against us in developing independence from foreign oil is this silly notion that there’s a conspiracy that’s preventing us from developing alternative fuels.
    There’s not. Period. But that little notion keeps politicians who block us from drilling for oil in ANWR or off our coasts, safe.
    Because hey, when some brilliant Democrat unravels the conspiracy, we’ll be riding around in flying cars that burn sewage, helium, dust bunnies, etc., and get 800 miles to the ounce. It’s been just around the corner for what, 30 years?
    Instead of a Tiger in our Tank, we need the entire Democrat Congress in a tank – the drunk tank.

  22. Are we all forgetting about dear teddy kennedy? he owns TWO oil companies, and yet no one seems to be screaming at HIM for price gouging….why would that be, do you think?
    As soon as pelosi (or any other democrat, or ANY MSM outlet for that matter) calls dear teddy to the carpet, I’ll take her a bit more seriously. until then, she’s just another demagogue.

  23. Captain,
    I generally agree that the government should stay out of the way and let the free market dictate gas prices. But as a matter of public policy, I think it’s a really bad idea to say that a corporation should be allowed to do as it likes because many of us own the company’s stock. Certainly that’s the case Teddy Roosevelt would make.
    As a nation, we are all much richer without Standard Oil monopolizing the industry. Even if each American owned shares in ‘Standard Oil’, this would be the case. It was the American system that first regulated monopolies, and as a result our nation became the first to experience massive growth in part because of effectively regulated capitalism.

  24. Captain,
    I generally agree that the government should stay out of the way and let the free market dictate gas prices. But as a matter of public policy, I think it’s a really bad idea to say that a corporation should be allowed to do as it likes because many of us own the company’s stock. Certainly that’s the case Teddy Roosevelt would make.
    As a nation, we are all much richer without Standard Oil monopolizing the industry. Even if each American owned shares in ‘Standard Oil’, this would be the case. It was the American system that first regulated monopolies, and as a result our nation became the first to experience massive growth in part because of effectively regulated capitalism.

  25. Wow, I’ve never seen the massive profits of Big Oil (not that this is of itself a bad thing mind you) called a GOOD THING for the everyday person due to their 401Ks/investments.
    Check the holdings of the average joe and I doubt you’ll see the huge profits actually adding much to the bottom line.

  26. Everything has limits. As the “costs per barrel” go up, and it’s true this wealth flies into the pockets of the shieks of Arabia … There’s something else you might want to notice.
    OIL IS ALL OVER THE PLACE! But the costs of extracting it are so prohibitive, they leave little for profits. In other words?
    At some point it will pay to extract oil from shale.
    At some point it will pay to investigate other products; or combo engines that get some of their “oomph” from battery packs.
    True, we don’t have anything yet to see, except gas prices going up. But there’s more than one way to slice the market from the Saud’s. And, even from the lunatics in south America (where wealth is not distributed. But sticks in the hands of the despots running the country.)
    Say what you will, but you can buy Exxon stock. It’s a publickly traded company.
    And, the Saud’s? They’ve taken their wealth and gambled it away. Extravagant living. Plus, buying into the spread of wahabbi terrorism. And, the purchasing power of supplying explosives to idiots. Some who put on these vests. Now, you tell me. How can you sell dying like that?
    As if the future is just one long continuum, without bumps on the road.
    The Saud’s became profitable in 1974. You’ve now seen how they are betting their money. But offstage? Their princes are allowed to marry many wives; and the checks for the babies born are not the same.
    Among the Saud’s there’s a 25% unemployment rate. And, an attitude that keeps most of them from gaining any real knowledge or marketable skills.
    So while the price of gas goes up, so, too, do the threats, ahead, to the “fund raisers” for the terrorists.
    Be interesting to see how the Man Upstairs blows on certain sets of dice. Not others.

  27. I hope gas prices keep going up. This way alternatives like ethanol (big in the Badger state) become more attractive. I love me some capitalism. We can grow corn for fuel(we also have stoves that burn corn) and then we can tell the Saudis and big oil to kiss our arses. Our DEMOCRATIC GOVERNOR, Mr. Doyle, is pushing these alternatives big time. NoDonkey, would the anti-christ also be a democrat in your down-is-up up-is-down twisted mind? Just wondering.

  28. I hope gas prices keep going up. This way alternatives like ethanol (big in the Badger state) become more attractive. I love me some capitalism. We can grow corn for fuel(we also have stoves that burn corn) and then we can tell the Saudis and big oil to kiss our arses. Our DEMOCRATIC GOVERNOR, Mr. Doyle, is pushing these alternatives big time. NoDonkey, would the anti-christ also be a democrat in your down-is-up up-is-down twisted mind? Just wondering.

  29. No, the Democrats will be the lickspittle chambermaids to the anti-christ, just like they are for every other tinpot dictator tyrant on earth.
    Ethanol – a useless, inefficient, overly costly boondoggle. No solution, but at least Americans are getting rich over it instead of Arabs, so that’s something.

  30. The parking lot here is full of pickup trucks and SUVs, all driven here by one person, many from a fairly long distance. So how serious is this “crisis?”
    The ignorant moan about the oil companies, instead of the big profiteer, government.
    Meanwhile, as noted, there is still no energy policy. Above $40/bbl, coal gasification and shale oil and tar sands could be profitable. We’ve still got botique blends of gas.
    I just live close to work and drive a small car. Anyone who expects the government or the oil company to solve this for them is welcome to continue whining. They will take your money.

  31. “The parking lot here is full of pickup trucks and SUVs, all driven here by one person, many from a fairly long distance. ”
    How many of them have Kerry-Edwards stickers on them, or some other left wing bumper sticker? About 50% here in DC. My favorite is the “Save the Planet” sticker on the Lexus SUV.
    “I just live close to work and drive a small car.”
    So do I. Fill up once a month. Gas can get to $5.00 a gallon and it would mean an extra $15.00 a month for me, which is lot less than I’m making on my Exxon stock.

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