IWF Expert Says Low Supply, High Demand Driving Gas Prices

As I’ve said numerous times on this blog, gas prices are no different than any other commodity. It’s price of oil is ruled by the same law of supply and demand as all other items that are sold.
What is interesting to me is that most people, for some reason, believe that oil companies shouldn’t be allowed to make a profit.
The average profit on a gallon of gasoline is 8 cents. So out of the $2.99 we are paying for a gallon of gas here in Texas right now, 8 cents is profit, 48 cents is taxes, and the rest is the core cost of production. I’ve oversimplified it some, but that is basically how it works out.
So why are gasoline supplies so low, you might ask? It’s refinery capacity.
All U.S. refineries have been operating at 100% to 110% of capacity for the last several years.
Now keep in mind that because of our environmental laws, the U.S. has not built a new refinery in the last 30 years. Just like all things mechanical, refineries have to maintained. While they are being maintained, they cannot operate at 100% capacity.
Now take into account things like the fire at the Valero refinery and the shut-ins on the coastal refineries due to the major hurricanes and now supply has become restricted.
The bottom line is, I don’t like paying high gas prices either. It cuts into my bottom line just like it does yours. But gas prices are driven by our usage habits, plain and simple.
Every time Congress has held hearing on oil company price gouging, the oil companies have proven without a doubt that they have not been manipulating prices.
Our government, on the other hand, finds it easier to point the finger at them rather than allow the public to know that they are the problem. High gas taxes, environmental regulations that demand different “blends” of gas for different parts of the country and the refusal to oil companies to build new refineries is responsible.

An economics expert says attempts by Democrats in Congress to resurrect the era of gas price controls will harm consumers in the long run. She contends that competition — not Congress — is the only effective way to keep gasoline prices down.

Gas prices in the U.S. have soared to a record high. The average price of self-serve regular unleaded gasoline has risen to $3.18 a gallon, topping the previous inflation-adjusted record of $3.15 a gallon in March 1981. The average prices for a gallon of mid-grade and premium have also risen to $3.29 and $3.40 respectively. The American Automobile Association (AAA) is predicting that within the next 60 days, the average price of a gallon of regular unleaded is likely to reach $3.25.

Carrie Lukas, vice president for policy and economics at the Independent Women’s Forum, says it may be tough to do so, but Americans have to sit tight and “let the market work and take its course.” She believes that in the short term, there is really nothing the government can do, short of reducing taxes on gasoline. “But unfortunately I don’t hear that being discussed too frequently,” Lukas offers.

She says the policies that Washington lawmakers have suggested as solutions for rising prices will actually create more problems. “Really, what they have to do is think about long-term solutions that are going to be increasing our ability to produce gasoline,” she says, “not just trying to have a quick fix to curing prices today.” According to Lukas, price controls can lead to gas shortages, something the U.S. experienced in the 1970s.

Lukas says competition, not Congress, is the only effective way to keep prices down. And consumers, she adds, have to understand that when prices go up, there is a reason. “It’s no coincidence that it’s right around Memorial Day, as we’re heading into the summer driving season,” says the economics expert. “The prices are going up because there’s a greater demand for gasoline [in the summer months].”

And prices, she continues, send signals. “They send signals to suppliers that we need more of something — [and] signals [to] consumers that there’s less of it to go around. It becomes more valuable.”

Skyrocketing gas prices, says Lukas, also send signals to consumers that they may want to reconsider taking a long summer road trip, or forego their gas-guzzling SUV for a more fuel-efficient vehicle.

Original Link.

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