Saturday, May 24, 2008

My Thoughts on Gas Prices

This morning in the Arizona Republic was an article explaining why gas prices are as high as they are. It was put out by the AP and I was expecting it to place all the blame with the greedy oil companies. I was pleasantly surprised to find that the authors had actually done some research, and had found that there are many other factors involved. Although they miss a couple of important points, they are pretty thorough, as well as fair and accurate. The article is here.
The sad thing about the article was the comments. A lot of "this is BS, everybody knows it's corporate greed that's to blame", or "the AZ Republic has become a shill for big oil". When presented with a logical argument, complete with facts, the left just ignores it.

Some important facts about gas prices and oil companies, some from the article, some from other places:

Oil companies profit margins are estimated to be between 7% & 9% - actually below average when compared to other industries. The record profits are due to the tremendous size of the corporations.

Taxes account for over 11% of the price of gasoline.

Profit margins for refining oil into gasoline have dropped dramatically. Many companies in the refining industry lost tens of millions of dollars in the first quarter of this year.

The oil industry already has significant barriers to entry (the vast amounts of capital needed to find and secure the oil), which inhibit competition, yet our government creates even more barriers by severely restricting where oil can be drilled, and implementing other regulations.

I don't mean to be defending big oil, but, when you look at the situation, corporate greed is the least of the problems when it comes to high gas prices. I've kind of put this together haphazardly, and it may seem complicated, but it really is just simple supply and demand. Apparently, the majority of our country wasn't paying attention during their introduction to economics class.

Thomas Sowell makes a much better argument than I do. He did a series of columns last week on this subject. The first of them can be found here.

Well, I could go on forever, but I'll save it for another day.

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