It is easy enough to blame oil companies for the "record high" gasoline prices we are now facing in this country. But, one must ask: are gas prices really outrageous? And secondly, are the oil companies really to blame for our current situation?
But, let's examine the facts:
$1 would buy you a lot of goods and services in 1950. Today; however, what you bought for $1 in 1950 now costs $8.78. The price of gasoline in 1950 was about 30 cents a gallon. Adjusted for inflation, gasoline prices ought to be about $2.64. This assumes taxes have remained the same.
But taxes have gone up. In 1950, taxes on a gallon of gas amounted to 1.5%. Today, taxes on a gallon of gasoline make up 20% or more of the posted gasoline price.
That 30 cents a gallon in 1950 should cost you about $3.13 today. But this assumes supply and demand has remained constant. It hasn't. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the "food chain" in terms of consumption, and they are requiring more and more energy every year.
The last oil refinery built in the United States was completed in 1976. Government regulation has has forced this issue for more than 30 years. This is likely why building a refinery right now will have little immediate impact on the price of oil. It is, as they say, "too little, too late". Buying oil from countries who have nationalized oil fields puts a risk premium into the price of oil that we must buy from them.
As for the claims that oil companies post "excessive profits", consider that 9.5% of the price of gasoline goes to the oil companies. 20% goes to taxes. A small percent goes to gas station owners and the rest is used up in the cost of production and shipping.
If "windfall profits", or high, "excessive" profit margins were the real issue, why not go after other industries who bring in much larger profits than oil companies?
For example: The profit margins for the [Periodical] Publishing industry is 24%, the shipping industry has 18% profit margins, application software boasts 22% profit margins, the tobacco industry rakes 19%, water utilities operate at 10.2%.
What's the solution? Cut back product distribution? Now that will cause a problem...more of a problem than we already have. What's another solution? Cut their profit margins down even more? They already operate on pretty thin margins. Don't these companies have a right to exist? And, if they don't, then who does? And why?
A third option is to just let them be. Don't blame the oil companies. Demand fewer coercive laws, regulations, and demand lower taxes.
But, let's examine the facts:
$1 would buy you a lot of goods and services in 1950. Today; however, what you bought for $1 in 1950 now costs $8.78. The price of gasoline in 1950 was about 30 cents a gallon. Adjusted for inflation, gasoline prices ought to be about $2.64. This assumes taxes have remained the same.
But taxes have gone up. In 1950, taxes on a gallon of gas amounted to 1.5%. Today, taxes on a gallon of gasoline make up 20% or more of the posted gasoline price.
That 30 cents a gallon in 1950 should cost you about $3.13 today. But this assumes supply and demand has remained constant. It hasn't. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the "food chain" in terms of consumption, and they are requiring more and more energy every year.
The last oil refinery built in the United States was completed in 1976. Government regulation has has forced this issue for more than 30 years. This is likely why building a refinery right now will have little immediate impact on the price of oil. It is, as they say, "too little, too late". Buying oil from countries who have nationalized oil fields puts a risk premium into the price of oil that we must buy from them.
As for the claims that oil companies post "excessive profits", consider that 9.5% of the price of gasoline goes to the oil companies. 20% goes to taxes. A small percent goes to gas station owners and the rest is used up in the cost of production and shipping.
If "windfall profits", or high, "excessive" profit margins were the real issue, why not go after other industries who bring in much larger profits than oil companies?
For example: The profit margins for the [Periodical] Publishing industry is 24%, the shipping industry has 18% profit margins, application software boasts 22% profit margins, the tobacco industry rakes 19%, water utilities operate at 10.2%.
What's the solution? Cut back product distribution? Now that will cause a problem...more of a problem than we already have. What's another solution? Cut their profit margins down even more? They already operate on pretty thin margins. Don't these companies have a right to exist? And, if they don't, then who does? And why?
A third option is to just let them be. Don't blame the oil companies. Demand fewer coercive laws, regulations, and demand lower taxes.
About the Author:
David C Lewis, RFA, specializes in personal finance. If you want more information about any aspect of personal finance, please visit David's website.
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