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Many factors lead to gas price increases in States
March 21, 2005 —
Over the past few months, gas prices have risen and fallen like a rollercoaster with semi-modest dips. But prices are expected to reach record highs in the coming months. Many are predicting different peaks in price; however, one thing remains in agreement – the prices will increase. How much more will it cost to enable the continuation of daily lives? What is the impact locally?
The United States Department of Energy (DOE) breaks gas prices down into four separate factors: 14 percent for distribution and marketing costs and profits, 13 percent for refining costs, 31 percent taxes, and 43 percent for crude oil costs.
The biggest overall influence is the main producer of crude oil, OPEC (Organization of Petroleum Exporting Countries). OPEC is comprised of eleven countries: Iran, Iraq, Saudi Arabia, Kuwait, Algeria, Qatar, Libya, Venezuela, Indonesia, Nigeria, and the United Arab Emirates. Two-thirds of the world's oil reserves are found in OPEC nations and they produce 40 percent of the world's oil supplies.
It is no secret that the world greatly depends on foreign oil supplies – including the United States. According to the Energy Information Administration (EIA), an office of the DOE, the U.S. alone imported 300 million barrels of oil from OPEC nations in December 2003.
Additionally, when OPEC decided to stunt production by one million barrels per day in April 2001, U.S. consumers saw gas prices climb to an average national high of $1.71 per gallon. OPEC also adjusted their production quota when the U.S. imported 1.5 million barrels of crude oil per day from a non-OPEC nation such as Mexico in 2002.
Refining the oil is another variable. Different areas of the country, like California, require more aggressive refining techniques due to stricter clean air laws that require cleaner burning fuel.
A similar cause affects Midwest gas prices since it uses a gasoline that is produced using ethanol, a variant derived from corn, rather than methyl tertiary butyl ether, which allows for a cleaner burn resulting from less unburned carbon monoxide in exhaust.
Taxes play a significant part in the determination of the price of a gallon of gas. As stated before, 31 percent of the price for a gallon of gas is affected by taxes. These taxes are mostly federal taxes; the DOE states there is an 18.4-cent federal excise tax per gallon of gas. Along with that, consumers incur an approximate state excise tax of 20 cents per gallon.
Local city taxes and state taxes also play a small role, followed by fuel station markups of a few cents so that they can profit from gasoline sales.
The costs for transporting the gas to different parts of the country cannot be ignored. Gas prices may be slightly lower in areas closer to the refineries. By the same token, prices are higher in areas further away from distribution centers. Consumers also pay for the cost of marketing different brands, such as Shell, Admiral, Sunoco, etc.
Trilby Lundberg, who publishes a semi-annual survey of 7,000 gas stations across the country, announced that the average price of all three grades of gasoline jumped 6.71 cents per gallon to $2 per gallon between Feb. 19 and Mar. 4 of this year due to a rise of $5.43 in crude oil prices to $53.78 per barrel. Lundberg also attributes increases to the reformulation of gasoline to prevent heavy winter pollution.
A high increase in fuel demand is also being investigated as a cause. Americans are driving more than they have in recent times, and the influx of Sport Utility Vehicles has saturated the American roadways. SUVs require a significantly larger amount of fuel to travel to the same places that were once driven to with a more fuel-efficient automobile, walked to, or biked to.
The U.S. government recently stated on Wednesday, Mar. 2 that it has a nine percent greater surplus in gasoline over the last year, meaning the supply is the largest it has been since 1999. Will this make a difference in price even though gasoline demands are expected to climb upwards of 9.22 million barrels per day this year in contrast to the 8.4 million barrels per day in 1999?
The DOE has stated that gas prices on the west coast went from an average of $2.09 per gallon on Feb. 21 of this year to $2.17 per gallon on Mar. 7. This trend is similar across the country: in the Midwest, gas climbed from $1.87 per gallon to $2.00 per gallon on the same dates. The east coast saw prices go from $1.88 on to $1.95, while the national average price went from $1.90 to $1.99 per gallon.
At SVSU, a majority of the student body commutes to and from campus on a daily basis as opposed to living on campus and saving a few dollars at the pump. Lisa Torrez, manager of the 7-Eleven store and gas station on the corner of Bay Road and Pierce, has had numerous complaints from students on a daily basis.
"Students are coming in here all the time and complaining about the prices," she says. "Most students only work minimum wage jobs and find themselves almost spending half of their paychecks on gas lately. Senior citizens are really the only people completely filling their tanks – and that's only at the first of the month."
Jannifer Tyrrell, a Bay City resident and biology major at SVSU, commutes to campus five days a week and is unhappy with the current trend affecting her finances.
"I used to fill the tank," she says. "Now I only put five dollars in it. I have two cars, and it costs me 60 dollars per week to keep them running."
On the opposite side of the spectrum, some consumers don't pay any attention to the rise in prices. Some even accept them as part of life like Aurelia Hanskett, a nursing major. She normally spends $20 to $25 per week on gas amongst her four day a week commute to class.
"It really isn't as bad as people think if you look at the realistic price of gas compared to what it was years ago," she says. "I have a two-car family and gas is needed. It's a necessary evil."