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Maybe this has been answered elsewhere but here goes.
I don't buy hanging everything on Bush. I don't care for him at all but I want a more clear answer for why gas is so expensive.
When I first moved to Florida which was in the Fall of 2001, I was paying .99 cents per gallon for gas. What has caused the price to go up so far? Are the oil companies making MORE of a profit or is it something about the supply, as in, are they producing less?
This is getting insane. Today I put $20 into my truck and only got about 1/8 of a tank for my trouble. When is this likely to get better?
World wide demand is up. China, India, Brazil, and Russia are all experiencing an economic boom period. naturally the demand for oil goes up massively as well. Therefore supply is short, so the cost of oil goes up.
i too remember paying about $1.1 a gallon in FL around 2001 (i grew up in Miami).
Oil companies are making record profits. however, their profit margins are still very low. (less than 12%). Let's put it this way, profit margins below 20% are considerer ultra dangerous. However, oil is a commodity, and profit margins are always low for commodities. The record profits are coming in from the massive volume of sales, not artificial markups.
When the US was a net-exporter of oil, the refineries in the US were small and built to handle intermediate grade crude oils. In the 1970s, as US fields started declining and Middle Eastern fields started increasing production, oil refineries were built to handle light crude oils, like Persian Light (Iran), Arabian Light (Saudi Arabia) and Basra Light (Iraq).
Supply capacity was built to meet consumer demand through the mid-1990s. The 1990s have come and gone, and no new refineries have been built, so the supply of gasoline in the US has been flat for the last 10 years, but demand has continually increased.
When supply is constant and demand increases, price rises. That's Economics 101. The gasoline capacity in the US is for 290 Million people, but now there's 300 Million plus 20 Million illegals with about 7 Million of those tooling around in cars (with no insurance and no license).
It takes about 17 years to build an oil refinery, so the supply will remain flat in the US until 2025. Why 17 years? It only takes about 4 years to build the refinery, but site selection takes about 2 years, the environmental impact studies about 3 years and it takes about 5 years to get the EPA permits, provided there are no lawsuits filed by environmental groups or other local groups in the interim.
Texaco was the last company to try to build a new refinery, and after 10 years and $112 Million, they didn't even have a site selected because of the lawsuits.
The price of oil doesn't have much impact on gasoline prices. $1 per barrel translates to about $0.05 at the pump. The real issue is regional supply and demand. You'll notice you pay about $0.50 to $0.75 per gallon more in Wyoming, Idaho, and Montana, because they have no refineries nearby and gasoline and diesel are trucked in. Here in the Midwest we have very limited supply and when demand jumps, prices spike, they start trucking it in from the Atlantic Coast and Northeast, and that costs even more until demand drops.
At least part of the issue here in the Midwest with respect to supply is the damn ethanol. If they can't produce enough ethanol fast enough, then there's a shortage of gasoline.
It absolutely has nothing to do with refineries. Going back to Eco 101, a shortage of refining capacity, which doesn't exist, could affect the price of gasoline, but it would NOT cause the price of crude to increases. If you track the price of gasoline and the price of crude oil, you'll find a pretty stable relationship. Gas is up because crude is up. The reason we have no new refineries in this country is that the major oil companies increase the capacity at old refineries rather than build new refineries. The economics of that are better.
The price of oil is set on a world market at a daily/hourly auction. Despite people's fears the big companies have little or no impact on that price. Massive producers like Saudi Arabia can have some influence because at 9-10 million barrels a day of capacity, Saudi Arabia can affect the supply of oil available to sell. But that's not happening today either, because Saudi Arabia is producing about all they can lift. If the Saudis were producing 5 million barrels a day and the world price was $120 barrel, you could reasonably suggest they were manipulating supply to affect price, but if they are pumps all they can, that suggestion doesn't hold water.
Could we bring the price down by drilling for oil domestically? Off the coast of Florida, North Carolina or in ANWR in Alaska. A little but not much is my answer. The United States has been explored for oil. The "elephant" fields have been found. We still have quite a bit of oil and some for environmental reasons we've decided not to produce. The biggest such supply is in northern Alaska at ANWR. There's a long running fight with the environmental community about producing from ANWR. My personal opinion is that we can produce from ANWR without major environmental damage. Our production from the other North Slope fields hasn't led to significant environmental damage there and technology has advanced, so I'd go ahead. The environmental community is reluctant because the oil companies have a poor record over the long haul of environmental stewardship -- Alaskan Oil spill from the Exxon Valdez being the most public, but just a few years ago BP had to shut down most of their North Slope production because they found the local pipelines they were using to get the oil to a central point had corroded to the point that they were ready to break at any time.
Eventually we will produce from ANWR in my opinion, but it probably will only be a small blip on the world oil market. The world produces about 75 million barrels of oil a day. Because there is only one way to get the oil from ANWR or the Alaskan North Slope, the Trans Alaskan Pipeline System (TAPS), the most you can get from ANWR and the North slope combined is about 2 million barrels per day. the North Slope production is declining, but with BP's gathering pipeline repaired the North Slope will produce around 1 million barrels per day by itself. That means, regardless of the size of ANWR, it can only add an additional 1 million barrels a day of oil to the 75 million barrels a day of world production. Not a huge boost.
Overall the price is high because demand for oil is growing and supply is flat or declining. There's a current theory around call "Peak Oil" which postulates that we are running out of oil. Now people have been saying that since the late 1800 when oil was first discovered in Western Pennsylvania. Someday it will be true. I think we are running out of cheap oil. There's a lot of stuff that we can turn into liquid fuel, like the Canadian Tar Sands or the Western Oil Shale, but it's substantially more expensive to produce than a barrel of Saudi Light. It seem unlikely to me that we can "produce" our way out of the current high prices.
Let's address the "it's China, India, etc" assertion. China and India are growing rapidly and industrializing, particularly China. Their demand for oil is increasing, and so is the size of their economy. The demand for oil in the United States is also increasing at about the same rate that China's consumption is increasing. China consumes about 8 million barrels a day and we consume about 20 million barrels a day. China has 1.3 Billion people and we have 300 million people.
In business terms "the low hanging fruit" is American consumption. Our average miles per gallon for the fleet of cars, SUVs and trucks we drive has actually declined over the last 20 years. We can affect the world demand for oil by 4-5 million barrels per day by changing our lifestyle and shifting from 20 mpg vehicles to 50 mpg vehicles. We know we can do this because almost the exact same thing happened in the late 70s and early 80s when we first put fuel economy standards on cars. American traded in their gas guzzler station wagons for small economical sedans. The oil got cheap and we traded in the VW Golf for a large gas guzzler SUV or pickup truck, which are exempt from fuel economy standards due to politics. We got 25+ years of inexpensive oil from the belt tightening we did in the late 70s. If we want another period of cheap oil, it's probably time to go back on that diet.
Hahahahaha
A better question is, "why is gas so cheap?"
Do some research and you will see, that compared to much of the world, gas here is extremely cheap.
Why would the price go down? It's a limited resource that is seeing drastically increased demand, while the US dollar continues to plummet in value...
Oil's pretty cheap. You can buy 7 barrels with only one ounce of gold. That's only a 30% increase in over 30 years when an ounce bought 10 barrels. Less than 1% increase per year compounded.
Not using a gold standard? Ah, there's your problem.
It absolutely has nothing to do with refineries. Going back to Eco 101, a shortage of refining capacity, which doesn't exist, could affect the price of gasoline, but it would NOT cause the price of crude to increases. If you track the price of gasoline and the price of crude oil, you'll find a pretty stable relationship. Gas is up because crude is up. The reason we have no new refineries in this country is that the major oil companies increase the capacity at old refineries rather than build new refineries. The economics of that are better.
The price of oil is set on a world market at a daily/hourly auction. Despite people's fears the big companies have little or no impact on that price. Massive producers like Saudi Arabia can have some influence because at 9-10 million barrels a day of capacity, Saudi Arabia can affect the supply of oil available to sell. But that's not happening today either, because Saudi Arabia is producing about all they can lift. If the Saudis were producing 5 million barrels a day and the world price was $120 barrel, you could reasonably suggest they were manipulating supply to affect price, but if they are pumps all they can, that suggestion doesn't hold water.
Could we bring the price down by drilling for oil domestically? Off the coast of Florida, North Carolina or in ANWR in Alaska. A little but not much is my answer. The United States has been explored for oil. The "elephant" fields have been found. We still have quite a bit of oil and some for environmental reasons we've decided not to produce. The biggest such supply is in northern Alaska at ANWR. There's a long running fight with the environmental community about producing from ANWR. My personal opinion is that we can produce from ANWR without major environmental damage. Our production from the other North Slope fields hasn't led to significant environmental damage there and technology has advanced, so I'd go ahead. The environmental community is reluctant because the oil companies have a poor record over the long haul of environmental stewardship -- Alaskan Oil spill from the Exxon Valdez being the most public, but just a few years ago BP had to shut down most of their North Slope production because they found the local pipelines they were using to get the oil to a central point had corroded to the point that they were ready to break at any time.
Eventually we will produce from ANWR in my opinion, but it probably will only be a small blip on the world oil market. The world produces about 75 million barrels of oil a day. Because there is only one way to get the oil from ANWR or the Alaskan North Slope, the Trans Alaskan Pipeline System (TAPS), the most you can get from ANWR and the North slope combined is about 2 million barrels per day. the North Slope production is declining, but with BP's gathering pipeline repaired the North Slope will produce around 1 million barrels per day by itself. That means, regardless of the size of ANWR, it can only add an additional 1 million barrels a day of oil to the 75 million barrels a day of world production. Not a huge boost.
Overall the price is high because demand for oil is growing and supply is flat or declining. There's a current theory around call "Peak Oil" which postulates that we are running out of oil. Now people have been saying that since the late 1800 when oil was first discovered in Western Pennsylvania. Someday it will be true. I think we are running out of cheap oil. There's a lot of stuff that we can turn into liquid fuel, like the Canadian Tar Sands or the Western Oil Shale, but it's substantially more expensive to produce than a barrel of Saudi Light. It seem unlikely to me that we can "produce" our way out of the current high prices.
Let's address the "it's China, India, etc" assertion. China and India are growing rapidly and industrializing, particularly China. Their demand for oil is increasing, and so is the size of their economy. The demand for oil in the United States is also increasing at about the same rate that China's consumption is increasing. China consumes about 8 million barrels a day and we consume about 20 million barrels a day. China has 1.3 Billion people and we have 300 million people.
In business terms "the low hanging fruit" is American consumption. Our average miles per gallon for the fleet of cars, SUVs and trucks we drive has actually declined over the last 20 years. We can affect the world demand for oil by 4-5 million barrels per day by changing our lifestyle and shifting from 20 mpg vehicles to 50 mpg vehicles. We know we can do this because almost the exact same thing happened in the late 70s and early 80s when we first put fuel economy standards on cars. American traded in their gas guzzler station wagons for small economical sedans. The oil got cheap and we traded in the VW Golf for a large gas guzzler SUV or pickup truck, which are exempt from fuel economy standards due to politics. We got 25+ years of inexpensive oil from the belt tightening we did in the late 70s. If we want another period of cheap oil, it's probably time to go back on that diet.
This is the single best post on city-data I've seen regarding oil economics. It should be required reading before posting another "I want/deserve cheap gas" thread.
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