Why are gas prices so high?
According to The U.S. Dept Of Energy (DOE) (http://www.eia.doe.gov), about 73% of current gasoline prices are due to Crude oil prices.
For gas that is $4.00 per gallon
$2.92 is from Crude price (73%)
$0.44 is average Federal and State tax (11%)
$0.40 is refining cost (10%)
$0.24 is distribution, marketing and presumed profit (6%)
But Why is Crude oil selling at record highs?
The answer is complicated, but here are the main factors:
- World wide supply is low vs demand.
- Fears that Political or Military Conflicts in oil producing regions will limit supply (Futures Market).
- Increased Spring/Summer demand in U.S.
- Increased refining cost for "reformulated" or "Boutique" fuels.
- U.S. Dollar is low compared to Euro and Pound
World wide supply is low vs demand.
During 2007, the World wide consumption of oil was 85,540,000 barrels per day (BPD).In 2008, Consumption is expected to increase to 86,400,000 BPD, an increase of 860,000 BPD.
An additional increase is expected in 2009 to an estimated 87,760,000 BPD.
Total World wide production of oil in 2007 was 84,560,000 BPD.
In 2008, production is expected to be 86,480,000 BPD.
2009 production World wide is expected to be 87,720,000 BPD.
There was an apparent shortfall between production and consumption in 2007 of 980,000 BPD.
If projections of production and consumption are correct, there will be an apparent shortfall of 480,000 BPD in 2008 and 4,000 BPD in 2000.
How can there be a shortfall?
A shortfall is made up by existing oil stockpiles. If the world is using more oil than is produced, then oil stocks must be decreasing.
Data for World wide stockpiles are not reported at DOE, and are assumed to be lacking, but data are reported for stockpiles of countries that belong to the Organization for Economic Co-operation and Development (OECD).
Stockpiles were 2,575,000,000 total barrels (OECD) countries in 2007 (30.4 days supply for the world).
Stockpiles are estimated to be 2,562,000,000 total barrels in 2008 (29.6 days supply).
Stockpiles are estimated to be 2,563,000,000 total barrels in 2009 (29.2 days supply).
In addition to private stockpiles, the U.S. government currently has a Strategic Petroleum Reserve of 701,000,000 barrels, which represents a 60 day supply for the U.S. if all imports were cut off.
Why is world consumption increasing?
The World's population is rising and countries like China and India now have a "middle-class" that are starting to buy cars.
Fears that Political or Military Conflicts in oil producing regions will limit supply (Futures Market).
Nigeria has become a major oil producer and is a major export source to the U.S. But since 2006, rebels from the Movement for the Emancipation of the Niger Delta (MEND) have cut oil exports from Nigeria by 20%, by attacking oil pipelines and drilling installations.
Iran appears to continue their attempt to join the nuclear club despite sanctions from the U.N. Iran is a major oil exporter. Israel claims that within 18 months, Iran will have enough material to assemble a nuclear weapon, which Israel is not likely to allow. Any additional conflict will disrupt oil supplies for the entire Persian Gulf region. Iran has stated they will disrupt oil traffic in the Strait of Hormuz if they are attacked. Some speculate that Iran could also attack oil facilities in Iraq and Saudi Arabia in retaliation.
There are other potential interruptions of oil supplies.
Russia has begun to reduce oil exports to the Czech Republic after the Czechs signed the accord with the U.S., which will place radar facilities near Prague as part of a missle shield.
Venezuela's President Hugo Chavez has raised taxes on foreign oil companies operating in the Orinoco oil reserve from 1% to 16%. He has threatened to use oil as a political weapon against the U.S. Venezuela is OPECs founding member and is the World's 5th largest exporter of oil. Despite threats of cutting off supplies to the U.S., Venezuela is still the 4th largest supplier of oil to the U.S.
U.S. Dollar is low compared to Euro and Pound
Since the Euro was created in 1999, it's value against the dollar has fluctuated between $0.84 at it's lowest and on July 13, 2008 it was $1.59. If that were the only cause of increased gas prices, gas would have risen 89%. At that time, a gallon of regular gas averaged $0.903 and should be $1.71 per gallon now if all of the price increase were due to change in the Dollar vs Euro. The British Pound was valued $1.10 in 1985 and on July 13, 2008 it was $1.99, just below the 26 year high of $2.01 (81% increase).
1. Demand. Demand for oil products is up, therefore oil prices are up.
2. U.S. Refining Capacity.
3. "Boutique" Fuels. "reformulated gasoline" to reduce ground level ozone
"oxygenated fuels" designed to
4. Futures Market Speculation.
5. US Dollar Weak vs Euro.
6. Supply (Saudi's not willing to be "swing provider" since mid 1980s.
US exports about 1 million barrels of petroleum products per day (not crude oil, but low quality gas; primarily to Latin American countries.
Gasoline is about 17% of energy used in the U.S. 45% of oil consumed in US is gas, 2nd is "distilate fuels" heating oil, diesel fuel and electric power generation. CA requires all to meat low sulfer requirements.
3rd is jet fuel, 4th is "heavy oil", used for power generation and for large ships (down from nearly 20% of total usage to 7 and 4%)
42-47 barrels of gas for every 100 barrels of crude.
9% Dist & Marketing 19% Refining Costs and Profits 19% Fed & State Taxes 53% Crude Oil Price 2005 2.27/gal Crude 50.23 per barrel
Crude price is about 70% of current cost
A barrel of oil yields these refined products (percent of barrel):
47% gasoline
23% heating oil and diesel fuel
18% other products, which includes petrochemical feedstock—products derived from petroleum principally for the manufacturing of chemicals, synthetic rubber and plastics
10% jet fuel
4% propane
3% asphalt
The top five source countries and their percent share of U.S. total net petroleum imports were:
Germany and Japan import about 90% of their oil.
Canada (18%)
Saudia Arabia (12%)
Venezuela (11%)
Mexico (10%)
Nigeria (9%)
Increased Spring/Summer demand in U.S.
US and Canada use most oil for transportation, the rest of the world uses most oil for heat and electricity production, causing a seasonal peak for demand between the 3rd and 4th quarters, as people prepare for Winter.
Demand for driving is highest in Summer month in U.S. and Canada.
So in summary, why are gas prices so high? There are many complicated factors and many more we will discuss further. You may now want to consider purchasing an Alternative Fuel Vehicle.