US Gasoline Prices are Too Low

Having just dipped below $3/gallon, we can expect gasoline prices to spike again, given that Hurricane Rita has already forced the closure of Texas oil platforms and refineries, and there may be some actual destruction in Rita’s aftermath.

And we can expect further fluctuations in gasoline prices, along with the long lines, gas station outages, howls of “price fixing”, and all around bad times in the marketplace, especially at the retail level.

It won’t take much; every tropical depression that makes the jump to hurricane; every hint of a tsunami, and any other natural disaster will send out a signal for the futures market to hiccup, oil prices to inch up, and an immediate spike as the wholesalers raise their prices not based on how much they paid for their oil, but based on how much they guess it will cost for the next shipment. Reacting to a volatile climate and weather will give us volatile prices for weather- and climate-dependent commodities – every time.

And the fallout from natural disasters isn’t half of what we can expect from the volatility of the politico-economic activities in every corner of the world. I’m sure most of you know that we’re dependent on the bulk of our imports from countries whose people and leaders don’t like us at all, and are more than happy to raise prices simply to make a political statement. It’s been this way in the Near East since 1974, when OPEC first realized its political power which led to the Embargo that year. And I’m sure that many of you know about the political climate in Venezuela and Nigeria, given the antics of Hugo Chavez and Alhaji Dokubo-Asari.

The bottom line is that we are going to continue to have these destructive spikes in oil prices as long as there are natural forces -- and as long as we tie our addiction to foreign thugs. How do we manage to fix the problem?

I think the answer is simple. Forget about the price of gasoline. Determine the cost of gasoline and figure out a way to lower the cost or else pay the price we should be paying to cover the cost – probably around US $4.50 to $5/gallon.

Let’s look at the cost of gasoline. There’s the amount we pay the people who own the oil, to cost to transport it to the United States, the cost to refine it, to cost to transport the refined gasoline and diesel to the service stations, and a profit markup at every step of the way. But that’s only the beginning. The millions of people and critters that are sickened by the pollution caused by cars and trucks burning that oil, the wasted time caused by traffic gridlock, the probable hazards caused by global warming and its spin-offs – Katrina and Rita, anyone? – and the most insidious costs of all: A huge defense budget as the search for ‘safe’ oil drives our foreign policy down the road to eco-imperialism, with the deaths and maiming of hundreds of thousands of American and foreign soldiers and civilians only the tip of the cost-iceberg!

The $3 we’re paying right now for gasoline covers the costs of producing, transporting, and refining the petroleum and a hefty profit at almost all levels of commerce. But it doesn’t pay for the pollution and the global warming and an imperialist foreign policy. The only way we can do that is to impose a hefty tax to cover those real costs – about $1 to $150 a gallon comes to mind.

The down side, of course, is obvious. We’d be paying twenty- to thirty bucks a week more (depending on what and how much we drive) for fuel. And the price of just about everything else we purchased would go up a couple of percent, too, since grocery prices are driven by how much it costs to run the combines that harvest them and the tractor-trailers which bring the veggies to the local supermarket.

But the up-sides would outweigh the downsides by a huge margin. First, the cost would be painful enough to make people cut back on driving, but not so painful as to destroy them. Second, it would put a real force on the automobile manufacturers to get serious about mileage, the same way the embargo of 1974 gave Honda and Toyota their first toehold in the American market. Third, it would make domestic oil a better bargain, minimizing the problems inherent in our present approach of using foreign thugs as our petroleum drug dealers. Fourth, a lessening demand would probably exert downward pressure on prices. Fifth, it would lessen our perceived need to be involved in the affairs of theses selfsame thugs we deal with now, which would lesson the cost and pain of military actions around the world. Finally, the lowering of usage and the tax itself would be invaluable to offset the problems with the environment caused by profligate use of oil and no assets available to clean our own fouled nest up.

Nothing will solve the problems we face until we completely wean ourselves from hydrocarbon energy. But until we find the right mix of safe and clean energy, a high gas tax and the fuel economy it would drive is a great way to start.

Good thread OTS and I completely agree with you. Did you know that Toyota is planning to switch their all their drivetrains over to hybrids by 2008? Also I've posted this before but Solar Power is starting to increase in speed of new installations exponentially(well almost)



Biodiesel blends should get taxbreaks that is directly tied to how much Biodiesel is in the blend, say B10 would get a 10 % tax break B20 20 % break etc. I know that it wont be able to cover all of our needs but it would help a bit and that's better then nothing.

Tax Incentives should be given out to IT companies to encorage their employees to Tele-commute(my Father is doing that allot lately since we got a VPN connection straight into the server at his work)

Enact a UK like law that taxes congestion ridden roadways to discorage frivolous trips 2 miles to the grocery store or the 100 meters to the kids school that could have easily been walked to.

I was talking to a Honda employee the other day and he seemed fairly sure of that ALL cars in 10 years will have some sort of Hybrid technology in them.

Thanks for your comments, Sardion. When I bought my Scion last year, my wife was on the edge of turning in her Isuzu Trooper for the Toyota Prius, but we decided to wait a year and see what the future brings.

One of the things that annoys me about the present crop of hybrids is that they don't come with the charge-the-batteries from the electric grid (mains) capability. You can buy and retrofit a kit to give the Prius this "plug-in" option; the problem is that it costs about USD 1,000 and voids the Toyota warranty. I personally think this is short-sighted on Toyota's part, since, if you're someone like my wife, who commutes only 14 miles round-trip (I commute 23), you could use the electric motors almost exclusively without having to charge them from your gasoline (or potentially diesel) engine, which would give you the equivalent of a 200 miles/gallon (85 km/l) fuel economy.

Admittedly, the electricity in your home outlet that you'd use to charge your hybrid might come from an oil-burning electrical generating plant, but, given the economies of scale, it's still a lot cheaper than a 1500cc gasoline engine you lug around with you. And besides, as more plants switch to nuclear power, the oil usage -- even on a secondary level -- continues to go down.

Hopefully, Toyota, Honda, et. al. will incorporate this into their hybrids. It will undoubtedly add a bit to the costs, but the charging technology is already in place from the last batch of all-electric cars (the ones that never got off the ground).

I read a report the other day(it's behind a payed subscription wall now ) that said that 1/3rd of new car buyers are considering purchasing a Hy-Brid for as much as a 3,000 dollar premium. Last year the numbers were 5% of new buyers at 500 dollar premium, it's truely supply and demand at work.

As for plug-in hybrid, they could be perfect in places like Ontario where we get most of our electricity from Hydro and Nuclear(with under 5 percent of that coming from Coal which is supposedly being phased out soon).

I don't think Toyota and Honda really know just how much of a market there is for plug in hybrids. I'm betting it could be the norm eventually as everyone I've talked to who has one absolutely loves the convienience of "gassing" up in their own garage.

The car company I'm watching intently now is Kia as they are the fastest growing car company in the world atm. They are certainly in a position to pull the rug out from under Honda and Toyota as they have been rumored to be working on a plug in SUV hybrid, imagine just how huge that would be in today's market!

I personally believe we are on the right track allthough it's going to get bumpy from time to time.

Yes many new car buyers have looked into purchasing a hybrid car. Unfortunately there is an extremely long waiting line in order to purchase one (pick any of the companies that offer them). Unfortunately, the auto manufacturers did not make enough to supply the demand for them.

As long as there is a hybrid SUV or Van (as I need the room for all kinds of purposes), my next car purchase will definitely be a hybrid....

Gaz,
Toyota "offers a hybrid SUV version of the Highlander
www.toyota.com... l?s_van=GM_TN_HIGHLANDERHYBRID

The Ford Escape AKA the Mitsubishi Tribute is offered as a hybrid which Dawn and I looked at. However, it simply doesn't have the fuel economy to justify its price.

On the other hand, the new Chevy HHR seems like a possible candidate if you need to haul a bunch of people around on the cheap.

based on this review,
www.hybridcars.com...

The highlander is not really worth it.

OTS, the above link states:

A Prius looks and feels like a hybrid. When you drive one, you scream, “I’m a geeky enviro-weenie” from a mile away.

Ford plans on having have of it's vehicles to have Hybrid engines in them by 2010.

www.freep.com...

If car companies are just now reacting to gasoline prices at these prices just imagine what higher prices will do.

A Prius looks and feels like a hybrid. When you drive one, you scream, “I’m a geeky enviro-weenie” from a mile away.

And? When gasoline is $6/gallon, who's the weenie?

Enough of this bashing people who are intelligent, foresighted, and patriotic (as excess oil consumption harms national wealth and security).

Geeks rule because they're smart.

PS: Every one of China's politburo members [their supreme cabinet] has a science or engineering degree. None of US leadership does.

A very high ranking Chinese minister said that they ought to stop buying US treasuries with their massive forex surplus, as they are not good investments. Instead, he suggested foreign oil and resource stocks.

Geek yes. But who's the weenie?


If people did as geeks did, the world would be better off.

Absolutely correct. The US$5.50 per gallon you will be paying next week is not nearly enough.

Appropriate price pointing can be derived from using the example of say, Halliburton, a well-respected company held up by the incumbent US government as having excellent core competencies and ethics.

In Iraq, its subsidiaries charged 180 times the prevailing rate to supply gasoline (for various important consumers) into Iraq. It was a tough job in a "war zone", and someone had to do it, and that represents a fair return to investors - especially when paid for by US taxpayers.

Hurricane-induced "droughts" are far more difficult conditions working against continuity of supply in the doemstic US market..

So, a decent price point using current global trends, knowledge of spectacular shortfalls in the supply chain due to "unforeseen" weather, and based on the government's preferred supplier's own model, a FAIR price to gas consumers based on a FAIR return on investment to shareholders of the provider would be in the order of US$350-$400 per gallon.

I am still enjoying my 2000 Mustang Cobra.
On the other hand, my wife is driving 05 Mazada M3.

I do feel that automakers need to up their time dates on hybids, but I am also quite sure that there will be considerable costs to retool, etc. before the planned time periods they have in place.

I probably will never get rid of my Cobra, but will look to garage it and drive it sparingly as a collectable rather than a primary vehicle for myself. Not decided on what will become my next primary, as with many millions of other Americans, but the time is shortly coming when we will all need to move to something far more economical.

That is the real issue I see. Millions of people will opt to stay in what they have for varying reasons and will not hastily jump to buy hybrids, etc. The transition over to hybrids, etc. will be a slow one, despite economic necessity.







seekerof

Masked Avatar, thank you for your comments. However, I am really more interested in addressing the very real dangers -- environmental, financial, and geopolitical -- of a hydrocarbon economy than I am of using an ongoing technological discussion to push my own personal political agenda.

Seekerof, you make some excellent points. Hybrids may not be ready for prime time simply because there aren't enough of them for the economies of scale to make them a desired commodity -- at least not by a large number of people. And they have to be considered a "bargain", or else most people won't consider them.

But there are two ways of making hybrids a bargain: to make them cost-competitive with existing cars given $2/gal fuel or to offer the same calculus with $5/gal fuel. Obviously the latter scenario is it more effective! And even though I'm not a fan of market manipulation, the increase in fuel costs, in addition to helping push hybrids, will hopefully do something more important in the long run -- getting us weaned from our addiction to hydrocarbons as a fuel source with all the environmental, cost, and geo-political benefits that derive from it.

By looking at the way inflation has affected other things since the '70's, I'll go along with $2.50/gallon gas prices, but not a penny higher; I don't care what other factors one might want to pitch in!

Thomas, I am not looking at the cost of gas as 'comfortable'; I think we need higher prices to force us into using less gas and, ultimately, to get us weaned from our hydrocarbon addiction.

$2.50 a gallon obviously isn't working; look at all the gas-guzzlers, the lack of investment in nuclear power and other energy sources, and the number of wasted miles driven!

[edit on 24-9-2005 by Off_The_Street]

Try cruising into Canada..our regular gas prices just skyrocked. Even line ups as far as the eye could with one day's warning.

Dallas

Sure thing, just raise gas prices...that will stop the rich folks that can afford to buy brand new cars, let alone brand new hybrids to buy only hybrids.....in your dreams! The folks that can afford to buy these wonderful new hybrid cars are the same ones that can buy their new Chevys and Fords and Cadillacs (almost exclusively gas guzzing SUVs) and still be able to afford $5/gallon gas, investing in stocks and bonds and vactioning in the bahamas (or wherever it is they go).

What it will do is force those who live from paycheck to paycheck and drive 10-20 year old cars because that is all they can afford right out of their jobs, their homes and their lives.

Now, before you say something stupid about mass transit, you had better get out of your cushy home, condo, loft or whatever and take a trip (in your high priced hybrid) out to the country and check out those folks that do the farming and mining and logging (oh yeah, you probably hate them too, at least until you no longer have steel, wood, paper, etc) and all the other jobs that yuppies can't and won't do. You will see that mass transit is not available for these people. They have to drive to live and you are proposing making it expensive enough that they can't.

I'm certain that none of you will listen or even consider the possible validity of what I am saying, but it makes be feel better to think that maybe, just maybe, one person that thinks like you might read this and come to realize that there are lots of Americans that don't live the life you do and can't afford to conserve via hybrids and such because they can barely afford to live at all.

Last thought for you: look at minimum wage in your area, multiply that times 160 (4 weeks, 40 hours per week), look at the cheapest housing you can find and subtract that from the wages. Next, ask your housekeeper or whoever to total up your grocery bill, electric bill and water bill for one month, and subtract that from the wages. Now multiply the remainder of those wages by 60 (5 years income) and compare that with the price of your brand new hybrid...even without including all the other living expenses (clothes, transportation, etc.) you will hopefully be able to see that as it stands now, hybrids are a luxury item that can't be afforded by lower income folks...how is raising gas prices going to force them to buy hybrids that they can't afford to buy now?

[edit on 24-9-2005 by Jaryn]

Good post OTS.

The thing to me about hybrids is that they still support traditional car makers who are always going to serve the petrol-barons. I mean, does anyone think that a $20,000 hybrid makes them economically aware? I'm not impressed by the Prius or its owners although I guess it's a step in the right direction. Kind of like the first step one takes when running a marathon. Not much to get excited about.

I think the obvious solution to the oil-addiction is to use so-called "greasels" which are just diesel engines that have adaptors hooked up to them so they can burn cooking oil. I think Mazola can be churned out by Americans in mass-quantities much easier than we can refine the Saudi's sour crude.

My amatuer understanding of diesels is that any of them can run off cooking oil if the oil is heated up enough and made thin enough to ignite. Diesel technology is everywhere on Earth, so all we need are the adaptors to bolt on. I'm planning to build one myself.

Here's a site where a guy talks about his Benz which he converted to run off veggie oil:

www.otnrgy.org...

The learning curve is steep. However, now we've mastered it, we figure we could do the next one in about 6 to 8 hours. Parts cost is about $700.00 for basic kit, plus $320 more for the add-ons that make in work in NH. We drive about 50,000 miles per year. Savings will be about $3000 per year @ $1.50 per gallon for diesel, or $3400 at $1.70 per gallon. Conversion cost will be paid for in six months or less.

Best of all, the next time we have an acute fuel shortage or prices go sky high , our prices for veggie oil will stay the same, $0.00 with no limit to supply.

When veggie oil is approved as a fuel by the EPA, we'll have to pay about 45¢ per gallon tax on it. From 100% savings to 66% savings. But environmental savings will be huge; effectively, no pollution at all, 40% less particulates, no Carbon Dioxide (after subtracting Carbon oil plants needs to grow), no chemical fumes, just Nitrous oxide in the amount it takes to grow cooking oil.

Can you explain to me why this sort of conversion is not made easier for Americans? It seems obvious to me that there is a conspiracy to keep us at the pumps. How can anyone say otherwise?

[edit on 24-9-2005 by smallpeeps]

Jaryn change is always painfull but really what's wrong with encoraging more Public Transportation and more offers of Hybrids by the Car companies by forcing their hand by artificially creating a market for efficient cars and a public demand for Public Transportation.

We are lowering the quality of life of everyone the longer we stay on our Oil Addiction.

A cost beneifit analysis is all that is needed to see the wisdom in doing it early before the Peak hits or another Katrina or even a Terrorist strike on Refineries it would "fire-proof" the economy so to speak.

The prices of Gasoline has nowhere to go but up in the long term, are you saying we should enact price controls to keep it artifically low and encorage more SUV and Minivan sales that guzzle gasoline just so the poor can get around? That plan will hit a brick wall going 80, the results aren't going to be pretty.

how is raising gas prices going to force them to buy hybrids that they can't afford to buy now?

The Middle Class is the main driver of any Western Economy, they are the largest consumer of Gasoline and if you make gasoline high enough they will do some number crunching and decide it's finnaly time to trade in that 12 MPG Suv for a 60 MPG Prius. It's simple economics that will eventually trickle down in used car sales as cars these days have a First Owner life of approximately 5 years.

[edit on 24-9-2005 by sardion2000]