First let me say I totally agree with Mr. Zevenbergen’s observation regarding the price of crude oil vs. gas not correlating. (Friday letter, “Any formula to gas prices?”) In addition to the “Big Oil” companies, it’s the local refineries.
Gas roughly has the following pricing structure: For every $15 of a barrel of crude oil, gas is 50 cents a gallon. There is also a fixed overhead cost of approximately 65 cents for a gallon of gas, i.e., if crude oil was $0, gas would still be 65 cents a gallon. Based on this, crude oil at $45 a barrel would equate to $2.15 a gallon for gas. At $60 a barrel (which it currently is) gas would be $2.65 a gallon, pretty close to the national average. However, we are paying $3-plus a gallon for gas. So what’s going on? Well, the joker in the deck is “summer blend” gas. The refineries trot out this excuse for inflated pricing every May. So they gouge us based on this along with the same drivel of maintenance, inventory supplies, retooling/reformulation, etc. This allows them to set bloated prices at whatever the traffic will allow. Granted these issues can add to the cost per gallon, but to what extent? They know this is going to hit every year. Seems to me they can do a better job of planning and scheduling to control costs. I would like to see our elected politicians both state and nationally unite and step up. Hold the refineries feet to the fire and ask some hard questions on how they justify these increases.
Of course we could be in California where they’re getting screwed with gas running $4 a gallon, or move to Oklahoma where it’s closer to $2 a gallon. Doesn’t seem right, does it.