Spring Break
Big oil is not the problem
Nick Hemenway
Issue date: 4/9/08 Section: Opinion
As you drive around town, it is hard not to notice how quickly gas prices have gone up, and it's only April.
With the peak driving season just around the corner, many have predicted gas prices will break $4 per gallon this summer. Naturally, people get angry, but we should be careful where we focus our frustrations.
Last week, executives from the five largest oil companies in the U.S. were questioned by Congress - specifically addressing their profit margins and investments into the renewable energy field.
As could be expected, members of Congress took the opportunity to accuse the oil companies of attacking consumers through high energy prices. At the center of the tirades was Rep. Edward Markey (D-MA), who called the billions made by oil companies unjustifiable, claiming "it's time for them to come to explain to the Congress, but more importantly to the American people, what they plan on doing on alleviating this enormous attack upon consumers and upon the American economy, which oil prices represent."
Politicians attack oil companies because they are an easy target to prop up in front of the angst felt by most Americans. However, oil companies have less control over prices than you would think.
The majority of the cost of gas comes directly from the crude oil prices. Controlled by the Organization of the Petroleum Exporting Countries, an international cartel of twelve countries meant to control global oil production, the price of oil is largely out of our hands. The U.S. Department of Energy reports this price to make up 53 percent of the total cost of gasoline.
After additional refining costs and taxes each take an additional 19 percent, the evil oil companies only get about 9 percent of the total cost to transport, market and distribute the end product - a reasonable margin for any company. Since the United States is the third largest producer of crude oil in the world, it can be expected that these profits will be measured in billions of dollars.
With the peak driving season just around the corner, many have predicted gas prices will break $4 per gallon this summer. Naturally, people get angry, but we should be careful where we focus our frustrations.
Last week, executives from the five largest oil companies in the U.S. were questioned by Congress - specifically addressing their profit margins and investments into the renewable energy field.
As could be expected, members of Congress took the opportunity to accuse the oil companies of attacking consumers through high energy prices. At the center of the tirades was Rep. Edward Markey (D-MA), who called the billions made by oil companies unjustifiable, claiming "it's time for them to come to explain to the Congress, but more importantly to the American people, what they plan on doing on alleviating this enormous attack upon consumers and upon the American economy, which oil prices represent."
Politicians attack oil companies because they are an easy target to prop up in front of the angst felt by most Americans. However, oil companies have less control over prices than you would think.
The majority of the cost of gas comes directly from the crude oil prices. Controlled by the Organization of the Petroleum Exporting Countries, an international cartel of twelve countries meant to control global oil production, the price of oil is largely out of our hands. The U.S. Department of Energy reports this price to make up 53 percent of the total cost of gasoline.
After additional refining costs and taxes each take an additional 19 percent, the evil oil companies only get about 9 percent of the total cost to transport, market and distribute the end product - a reasonable margin for any company. Since the United States is the third largest producer of crude oil in the world, it can be expected that these profits will be measured in billions of dollars.
Viewing Comments 1 - 4 of 6
William Cooper
posted 4/09/08 @ 11:29 AM MST
I would like to see the source for your claim that the U.S. is the third largest producer of crude oil in the world. For some strange reason I feel that the countries that make up O. (Continued…)
Kate
posted 4/09/08 @ 3:26 PM MST
Thanks for this article. My father is in the natural gas/ oil business, so I've known for years that it isn't the big bad oil companies that have consumers by the throat with gas prices. (Continued…)
Arvensis
posted 4/10/08 @ 1:56 AM MST
The entire topic of fuel and energy can get me really fired up, so I'll keep it short. True: supply and demand is the driving force of fuel prices. They scratch each others back. (Continued…)
Craig Hawley
posted 4/11/08 @ 10:08 AM MST
OK for cars here is the solution. Nuclear plants provide the electricity.
You have electric stations just like gas stations now. You require that all electric power cells be made to a standard size. (Continued…)
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