Whats with the latest gas price jump??

We are not running out of oil.

The price at the pump is driven by a variety of influences.

One, and the most obvious is the price of oil. Oil is currently trading at the highest prices ever. However, there's more going on there. Oil is traded in dollars, and when the value of the dollar falls, as it has been to it's lowest point in many years, it takes more of them to buy oil.

The price of oil is only a small piece of the puzzle. Oil is refined into gasoline and shipped. Labor rates and energy costs affect the cost of refining and distributing. The cost of diesel fuel which powers the trucks also affects the cost of distribution.

Then there's taxes, and gasoline carries a lot of tax, about $.37 federal and State excise taxes per gal., sometimes there's county and city taxes, and there's a State sales tax. Taxes like the sales tax are percentage rates, so the higher the base price of the product the greater the amount paid in taxes.

And then there's speculation. Because oil is a commodity, traded on global trading markets, like other energy, coffee, orange juice, and so on, investors and trading prices affect the cost. When oil costs the United States $93 per barrel to buy for fuel, the actual cost to produce that barrel is much lower. Some economists find that a very large percentage of the cost of oil is speculation.

Then there's the retail price. The fuel retailers can set the price anywhere they want to. Something retailers do, for their investors, is generate weekly sales projections. If by Thursday for example they are below projections they will raise the pump price to make up the difference. As long as the company grows investors invest. So it's vital for the retailer to keep revenue increasing. They can raise the price as they see fit. And if one chain raises the price the others will follow, simply because they can. The rules of supply and demand break down a bit with gasoline. Because you MUST buy it. You MUST get to work. So you WILL pay whatever they charge. It's not like buying a pair of sweat socks, where you could just wait for the sale at Wal-mart.

Then there's environmentalism. Environmental controls place excessive demands on the supply. Fuel consumption is highest in the summer. And cities generally have more strict formulation rules than the country. The problem is that there isn't enough fuel in storage near the city to meet the demand, so it must be shipped from further away. The multiple formulations mean that the refiners must make them all, seasonally, and store enough of each to meet demand, instead of there being one or two universal formulas. This raises the price too.

Incidentally, the United States gets a small portion of it's oil from the Middle East. The largest importer of oil into the U.S. is Canada, followed by Saudi Arabia, and Mexico. The U.S. imports about 20% refined products, not crude. You will often hear about the U.S. dependence on foreign oil. But the U.S. isn't terribly dependent on foreign oil The U.S. is the 3rd largest oil producing nation in the world, behind Saudi Arabia and Russia. The U.S. is the top consumer, using 20.5 million barrels per day. We produce 8.3 million barrels per day, importing the rest, more than half. The U.S. does not export much.

And no, corn ethanol is NOT a viable solution. It is arguably worse for the environment. Gasoline has a energy balance of about 5 to 1, meaning we get 5 times the fuel energy out than it takes to produce it. Corn ethanol has an energy balance of 1.3 to 1, meaning there is barely any energy benefit in producing it. Using corn for fuel greatly increases land usage for agriculture business, one of the most polluting industries, and drives up corn prices. Don't be fooled by the lower pump price either, corn is the most subsidized crop in the U.S. The lower pump price is covered by tax money paid out to produce ethanol. Without the tax subsidy the pump price would be higher than gasoline.