Thursday, June 12, 2008

My Name is Erl

NOTE: Throughout the course of this adventure I am going to try to spend a little time occasionally explaining some of the day-to-day things that I find confusing, interesting, or frustrating. I consider it an exercise to flush the details out of topics that are sometimes intentionally shrouded in mystery or just not explained very well. I hope they turn out to be interesting. Please let me know.

I thought today we’d talk about something that’s been on everybody’s mind lately. Namely: Why is it so hard to find a decent nude picture of Gillian Anderson on the web? Sorry, I’m looking at the wrong page of my notes here. GAS PRICES! Right. I wanted to talk a bit about gas prices this week.

It seems like every time I turn on the radio I get loaded up with more information than I ever wanted to know about the price of crude oil per barrel and what's happening in the Middle East. I generally try to tune it out, but sometimes I’m too busy putting on my make-up on the way to work to be bothered with switching stations. So, what does the price of a barrel of oil have to do with anything? I have never bought a barrel of anything in my life, except one time I bought a jug of pickles the size of my torso from Sam’s club that one of the pimply-faced, mouth breathers had to wheel out on a dolly. Turns out that you really don’t need that many pickles…for anything…ever. But I digress. So what’s a barrel of oil, and how does its cost effect the price of fuel (which is what we really care about)?

A barrel of oil is 42 gallons. Depending on who you ask, about 50% of the 42 gallons gets refined into gasoline. The rest becomes a jumble of other fuels, oils and lubricants (wink wink, eh?). The price per barrel of oil is hovering around $130 this week, and the price of gasoline is around $4.00 per gallon. How are the two related? Although it seems like this should be straightforward, finding the relationship between the price of gasoline and the price of oil is a bit like Rosie O’Donnell’s vagina. You know it’s there, but you really don’t care to look for it. Well, that’s what I’m here for...{shudder}.

The price of gasoline depends heavily upon a couple of major factors. We’ll look at a chart in a second, but for now I’ll just break down the big hitters.

Crude oil: As of today, this is the largest piece of the gas price pie. Around 73 percent of what you pay for each gallon goes to crude oil suppliers. The factors determining the price of crude oil are pretty nebulous: supply, demand, speculation, political instability, economic instability, war, peace, strife, malice, general malaise, and, surprisingly, the price of tea in China. Basically, OPEC looks at all of this and pulls a magic number out of their striped pajamas.

Taxes: The reason gas prices vary from state to state is primarily because of the way the states decide to levy taxes. On average, about 12% of the price of gas comes from taxes. These taxes are a combination of federal, state and local fees, underground storage tank fees and other environmental fees. Europeans pay over 50% toward taxes, which is why they are paying around $8.30 per gallon right now.
Refining: Refining costs for crude oil account for about 10 percent of the price of a gallon of gas. The refining process varies with the grade of gasoline that is being made, so prices vary along those lines as well. Incidentally, did you know that many states require specific formulations of gasoline? Right now there are 18 separate gasoline formulas for different regions of the country. Don’t ask me why, I’m sure it has something to do with Oprah, though.

Distribution and marketing: The oil and gas must be delivered to distribution points and gas stations (obviously). Transportation costs are part of the price of fuel because the trucks and ships that deliver the fuel…run on fuel. Kind of a snake eating its own tail, isn’t it? Also, oil companies actually believe that they need to spend money on marketing. As if we could ever forget that their product exists. Ever notice that gasoline ads are kind of like douche commercials? They never show the product or how it is used. Thank god for small miracles. These advertising and distribution costs together account for about 6 percent of the price of a gallon of gas.

There are a bunch of other extenuating factors, but these are the biggies. Here’s a graph of the how these factors have affected gas prices over time.

The percentages are scaled on the left, and the price of gas is scaled on the right. The graph shows that gas prices have been pretty stable over the past decade even though the influence of oil prices has been steadily rising.

You want to get really pissed off? Take a look at this:
Notice anything? The profits of the major oil companies (with some peaks and valleys) were fairly stable until 2000. Hmm, what could have happened in 2000 that would have made such a big difference to the oil companies? I just can’t figure it out. We may never know…Anyway, in 1999 they made a net profit of ~27,000 million dollars, and by 2006 they were up to 120,000 million dollars - an increase of 444%.

These numbers are so large, they are hard to fathom. 120,000 million is 120,000,000,000, or 120 billion. As a reference, I am a little over 1 billion seconds old, and I’d have to live another 3800 years to see that many seconds pass. If the oil companies were a country, it would rank at about 50th worldwide just below New Zealand. They would earn more than the last 69 countries on the GDP list combined. I was thinking more doggy-style than 69, but either way they don’t have to look you in the face. In their defense, they only make ~8% profit per unit they sell, which is still almost three times what they made in 1999. I’m still not sure what could have happened in 2000, though. 8% is actually equivalent profit to any other product manufacturer. The problem is that they sell so many more units, and the world economy is centered around what they peddle.

Where does this leave us? I’m spending about $200 per month on gas right now, which isn’t a huge burden. I look at it as a $200 a month bill for going where I want whenever I want. I expect to add ~$50 per month per $1 increase per gallon of gas. Although this is not a huge burden to me, it is a burden to many, which puts a strain (real or perceived) on the economy, which then becomes a burden to everyone. Gas prices will not be going any lower. I already know what to do to lower my costs (drive less,get more fuel-efficient vehicles, work for an oil company, etc.). Now, at least, I have an idea of where my money is going.


Kaiser Roll Joe said...

Good info, and great pictures, although I think they are being a little generous with GW's and emperor Cheney's physiques. About oil prices, let's not forget about the speculators. Decades of deregulation by both Dems and Repubs has allowed them to influence the price more than most people know, it's not unlike what Enron did in California with electricity. Also the gas tax Vacation proposed by McCain and Clinton, has anyone ever come back from a vacation only to find that work sucks more after than it did before? Why are we paying this tax anyway, let's start taxing those record breaking profits. In the 60's, corporate tax accounted for ~30% of all revenue (ballpark number), now it's about 10% (again, ballpark). Great blog Danny, keep it up.

Dan said...

Thanks, Joe. EDITOR'S NOTE: The "Gas-Tax Holiday" was proposed by McCain and backed by Senator Clinton.

Hippy said...

March 1 2000 - The Constitution of Finland is rewritten. That must be what you are talking about.