So, Prices at the Pump are Still 20% Below the Record

 

It stings like hell, particularly among those workers who depend on their cars to get to work or who use their cars as part of their jobs. Unfortunately, those at the lower end of the economic ladder are considerably more impacted than those in more affluent communities. And it’s not as if the high cost of fuel is limited to the pump. Air travel costs more. Supply chain realities add costs to anything that is delivered or shipped. Shortages of fertilizer and severe grain shortages make it even worse, all a result of the first (Russia) and fifth (Ukraine) largest producers reducing or stopped grain exports because of war/embargo casualties on growing, harvesting and shipping these basic foodstuffs. Everything will cost more.

While there is sympathy for victim-Ukraine, a tolerance of some higher prices as a necessary price to help counter Russia’s unprovoked and indiscriminate slaughter of Ukraine and its people, many around the world have no capacity to absorb these skyrocketing prices. In absolute hard dollars, hardly a valid comparison of course, we are hitting “record prices at the pump,” but in economic terms, not really. When taking inflation into account, average prices are about 20% below the U.S. peak and 7% below the California high, both in 2008.  

In the United States, after our energy independence faded with our own oil production fading in the 1960s – we have since found ways to reinvigorate once “exhausted” oil wells and difficult to extract shale oil with fracking (itself a toxic threat) – we were virtual captives of “foreign oil.” It was factor of major foreign oil producers severely cutting off their production to force oil prices higher. Simply, we did not have enough gasoline.

“During two separate oil crises in the 1970s, Americans from coast to coast faced persistent gas shortages as the Organization of Petroleum Exporting Countries, or OPEC, flexed its muscles and disrupted oil supplies…  In 1973 and again in 1979, drivers frequently faced around-the-block lines when they tried to fill up [the above picture]… Drivers would go to stations before dawn or late at night, hoping to avoid the lines.

“Odd-even rationing was introduced — meaning that if the last digit on your license plate was odd, you could get gas only on odd-numbered days. New Jersey and New York have just reintroduced the system… Back in the '70s, some gas stations took to posting flags — green if they had gas, yellow if rationing was in effect and red if they were out of gas.

“To conserve gas, the maximum speed limit was cut to 55 miles per hour. To cut energy consumption in the broader economy, daylight saving time was introduced year-round at the beginning of 1974, facing criticism from parents whose kids had to go to school before sunrise in the winter months.” NPR.org, 11/10/12.  But it was not until this century that we hit genuine, inflation corrected, record prices at the pump. Even as gas prices were already on the rise simply from the renewed, end-of-pandemic, demand without an offsetting increase in supply, the problem for most of us is that we have priced our economy and our lifestyle based on pre-invasion numbers, so the pain is very real.

Since federal state and gas taxes, as well as oil company profitability, are often based on a percentage of the price at the pump, those entities have been making out like bandits, and the OPEC nations are likewise enjoying the surge of profits from higher prices. Writing for the March 9th Los Angeles Times, Michael Hiltzik adds: “The more money that flows to gas companies, the less families have for necessities — food, rent, clothing — as well as leisure activities such as dining out or taking vacations…

“Nor is the run-up in oil and gasoline prices likely over. The main reason is easy to discern on the front page of daily newspapers and on cable news: Russia’s war on Ukraine. Petroleum is Russia’s leading export, with the European Union and China its top customers.

“Sanctions imposed on Russia by the U.S. and European Union had not included oil or natural gas, in part because Europe depends on the Russian supply through the winter and spring heating seasons. President Biden, however, announced an embargo on U.S. purchases of Russian oil Tuesday [3/8] as part of the international effort to choke off Russia’s financial resources.

“The move won’t have much of a direct impact on American oil supplies, since Russia accounts for only 3% of U.S. oil imports and 1% of the crude processed by U.S. refineries. (More for refineries on the West Coast and Gulf Coast.) But it injected another destabilizing concern into international oil markets, where the price of crude has been hovering near $130 a barrel. Prices at the pump closely track the spot market for crude… ‘This is a step that we’re taking to inflict further pain on Putin,’ Biden said Tuesday [3/8] in announcing the embargo. ‘But there will be costs as well here in the United States.’…

“It’s worth noting too that not everyone is feeling pain from higher oil prices. Big multinational oil companies have been exploiting the run-up in the price of crude to line their pockets. Chevron, for example, recorded a profit of $5.1 billion on $48.1 billion in sales in the last quarter of 2021, which ended Dec. 31, compared with a loss of $6.7 billion on $34.6 billion in sales in the last pre-pandemic quarter, the fourth quarter of 2019.

“ExxonMobil reported a similar trend line, with profit rising to $8.9 billion on sales of $85 billion in the fourth quarter of 2021, from profit of $5.7 billion on sales of $67.2 billion in the same quarter two years earlier… The share prices of both companies have been on a tear so far this year — higher crude oil prices are always appreciated by their investors. Chevron’s shares have risen more than 40% and ExxonMobil’s about 35% this year. Those are profits you’re feeding at the pump.” OPEC has not been particularly sensitive to Western requests to increase supply, and some nations – notably China and India – are still buying Russian fossil fuels.

Since the federal government has very limited ability to control the price of a barrel of oil – the price is set by the overall supply-demand realities in the global marketplace – what exactly can the Biden administration do? Aside from increasing pressure on our purported oil-producing allies to produce more product, there are steps. The release of government oil reserves into the market has had and can have only a very small and short-term impact. If the oil companies are unwilling to limit their profits, Congress could increase the tax on their profitability or even impose limits on the upside based on the cost at the pump. That effort would face an uphill battle with GOP resistance on imposing more taxes.

But the easy button would be a temporary moratorium or reduction in applicable state and federal taxes. The federal rate, a fairly low 18.4 cents a gallon, has not risen since 1997, but there is a cry even from a number of state governors to suspend that tax to make life more affordable for most of us. State gas taxes, a lifeline to fund many state activities, are another arena where reduction or a moratorium are viable. In California, a “car culture” state with exceptionally high taxes, a combination of taxes per gallon at the pump (sales, excise, underground storage, and carbon assessments), aggregate to over a dollar a gallon. Air quality standards in California add refining costs to fuel sold in that state. Several state legislatures, including California, are considering lowering their tax bite at the pump.

Is there a message in all this? SUV sales in the United States have almost doubled since 2010, and while fuel efficiency is increasing and electric/hybrid car sales are rising, perhaps this obvious vulnerability will motivate higher alternative energy vehicles and fewer sales of obvious gas guzzlers. 

I’m Peter Dekom, and we now have a two-fold reason to implement more conservation driven efforts to reduce our fuel consumption: climate change realities and support for Ukraine.