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?
Let's examine a few 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 haven't stayed the same...not even close. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes on gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill 'er up.
That 30 cents per gallon in 1950 should cost about $3.13. This assumes that the supply and demand of oil and gas has remained constant. However, China and India have been consuming more and more energy every year with no end in sight.
Add to this the fact that the United States hasn't built an oil refinery since 1976. Government regulation has pushed this issue for the last 30 years. Some countries have nationalized their oil industry, making investors nervous which in turn causes a risk premium to be priced into oil (thus affecting gasoline prices).
What about oil company profits? Oil company profits represent about 9.5% of the price of gasoline while 20% goes to Federal, State, and local governments in the form of taxes. Gas station owners see a small percentage, while most of the cost of gas is tied up into the cost of production and distribution.
If "windfall profits" were the real concern, then politicians would be hitting up other industries that have higher profit margins and - all other things being equal - make more money per product sold.
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%.
How do we solve this problem? Do we cut back on distribution? No, that will cause a bigger problem. What's another solution? Legislate tighter controls and regulations on oil company profit margins? That will cause oil companies to jack the price even higher in an attempt to meet shareholder expectations and stay in business.These companies already operate on thin margins.
A third option is to leave them alone. Tell your representatives to eliminate coercive laws, regulations, and then demand lower taxes and spending in Washington. - 15224
Let's examine a few 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 haven't stayed the same...not even close. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes on gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill 'er up.
That 30 cents per gallon in 1950 should cost about $3.13. This assumes that the supply and demand of oil and gas has remained constant. However, China and India have been consuming more and more energy every year with no end in sight.
Add to this the fact that the United States hasn't built an oil refinery since 1976. Government regulation has pushed this issue for the last 30 years. Some countries have nationalized their oil industry, making investors nervous which in turn causes a risk premium to be priced into oil (thus affecting gasoline prices).
What about oil company profits? Oil company profits represent about 9.5% of the price of gasoline while 20% goes to Federal, State, and local governments in the form of taxes. Gas station owners see a small percentage, while most of the cost of gas is tied up into the cost of production and distribution.
If "windfall profits" were the real concern, then politicians would be hitting up other industries that have higher profit margins and - all other things being equal - make more money per product sold.
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%.
How do we solve this problem? Do we cut back on distribution? No, that will cause a bigger problem. What's another solution? Legislate tighter controls and regulations on oil company profit margins? That will cause oil companies to jack the price even higher in an attempt to meet shareholder expectations and stay in business.These companies already operate on thin margins.
A third option is to leave them alone. Tell your representatives to eliminate coercive laws, regulations, and then demand lower taxes and spending in Washington. - 15224
About the Author:
David C Lewis, RFA is an independent financial adviser and provides objective financial information about life insurance, bank CDs, stocks, bonds, and other topics related to retirement & financial planning.
