Why Big Oil Is to Blame for High Gas Prices

Why Big Oil Is to Blame for High Gas PricesWhile oil prices have fallen to the $90.00 level, the price of gasoline continues to be stubbornly high, and you can blame this on the greed of the big oil companies.

I just went to the gas pumps and was shocked it cost $100.00 to fill up my gas-guzzling SUV, but that is a price I’m stubbornly willing to pay for the comfort of a larger vehicle.

The price of regular gasoline averaged $3.80 per gallon across the United States as of October 1, according to the U.S. Energy Information Administration (EIA); this is still well below the historical U.S. average high of $4.11 per gallon of regular gasoline on July 18, 2008.

If you live in the West Coast, the cost is staggering at a current average of $4.08 per gallon.


In my view, the price of gasoline makes little sense at the current level. Again, blame the oil companies and speculators.

Go back to July 2008, when gasoline was at $4.11 per gallon. At that time, World Texas Intermediate (WTI) oil prices peaked at $145.00 a barrel, so the high gasoline prices at that time made sense. During the recession, WTI oil prices fell to $30.28 a barrel; while on Tuesday, WTI oil prices sat at $89.33 a barrel.

In my view, there is absolutely little connection between oil prices and gasoline; but then again, maybe I’m missing something? Perhaps the oil companies aren’t greedy, and they’re just getting a bad reputation? The reality is that the government accounts for 11% of the cost of gasoline with seven percent for distribution and marketing, 18% for refining, and 64% for the cost of the crude. (Source: EIA) In other words, the oil companies are lining their coffers at the expense of the consumer.

With gasoline prices holding at the pumps, the jump in fuel costs will likely impact the disposable income of consumers at a time when spending is under pressure.

There is some “price elasticity” for gasoline prices in the short-term, as movements in prices tend to be “inelastic” since consumers minimally alter usage. In the short term, driving may be cut and the use of public transit will rise. There could also be a decrease in travel or road trips, which will have an impact on the hospitality business, such as hotels and restaurants.

You could move to Venezuela where the government-supported oil prices result in the price of gasoline at $0.18 per gallon. (Source: “Why do tax prices vary state to state? It’s not just taxes,” The Christian Science Monitor, October 9, 2012.) I doubt many of you would go to this extreme.

Another alternative would be to push your government representative to increase the focus on alternative fuels. (Read “High Oil Prices Mean Profiting From this Kind of Play.”)

Of course, the situation could be worse. Canadians paid a whopping average of around $5.09 a gallon. Gas in Europe is sky-high. Italy has some of the most expensive gas in the world at around $9.19 per gallon, which is probably why there are so many mopeds there. (Source: “Petrol prices around the world, September 2012,” October 10, 2012.)

The problem is that America is dependent on foreign oil to satisfy the country’s immense demand for gasoline. The greedy oil-cartel Organization of Petroleum Producing Countries (OPEC) controls much of the world’s oil; it dictates global oil prices by adjusting its production quota when these ultra-rich oil tycoons wine and dine at regular meetings. Gas prices in these OPEC countries are some of the lowest in the world, which shouldn’t be a surprise.

The reality is that oil prices must be controlled and gasoline prices should be regulated. Don’t open up the country’s oil reserves. The Keystone oil pipeline from the Canadian tar sands will help, but the environmental impact from oil sands oil is a major issue.