Fuel Prices Continue To Rise…

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June 29, 2009 by esarsea

The following post is a cut and paste from the blog I maintain for the company I work for, A Plus Transportation. Although it deals with diesel prices, I thought it might be interesting to toss around over here.

(Click on the graph above to view a larger, more clear image)

There are many factors that contribute to the cost of diesel fuel. Naturally, the cost and supply of crude oil plays a major role in the cost of fuel – but you may be surprised to learn that the cost of crude is only responsible for 64% of the price you pay at the pumps. Click on the highlighted text to view an excellent primer on diesel prices offered by The United States Energy Information Administration.

According to the EIA, the factors that influence the price we pay at the pumps include the cost of crude oil, tight refining capacity and international diesel fuel demand, product supply and demand imbalances, seasonality in the demand for diesel fuel and distillates, transportation costs, and regional operating costs and local competition.

As previously noted, the EIA reports that crude oil prices are responsible for 64% of the price we pay at the pump. The EIA also reports that refining is responsible for 21% of the pump price, followed by taxes (10%) and marketing and distributing (5%).

With this in mind, it’s interesting to look at the chart above. From all appearances crude oil prices dropped immediately from an all time high of $145-plus a barrell when President Bush lifted a ban on offshore drilling on July 15th 2008, and immediately began to rise again when President Obama reinstated the ban on February 17th, 2009. The chart above only shows through June 1st of this year, when crude oil reached $66 a barrell. Crude oil prices today are $71 a barrell.

I’m no expert on the matter but I suspect little if any progress towards actual offshore drilling and additional oil production was accomplished within the brief, 7 month window during which the ban was lifted. Yet it would appear that a simple perception of our intentions resulted in a $100 per-barrell drop in crude oil prices.

I’m not a particularly political person, but it does beg the question: Do President Obama’s actions reflect his concern for the environment, or do higher oil prices better enable him to gain support for heavy regulations and bureaucracy on the energy industry, among others?

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13 thoughts on “Fuel Prices Continue To Rise…

  1. bill says:

    Interesting theory.

    I believe you left out the individual state sales tax placed on a gallon of gasoline or diesel as forces working on the price at the pumps. And they all charge sales tax differently.

    Excerpts from The Christian Science Monitor today:

    “The global financial crisis has turned the economic landscape upside down,” Nobuo Tanaka, executive director of the Paris-based group, said in a statement. Both the oil and natural-gas markets “face enormous uncertainty surrounding the timing, pace, and extent of any economic rebound.”

    Oil markets are often volatile, and now that could be the case for political as well as economic reasons.

    Monday, for example, the oil rose nearly $2 in price to more than $71 a barrel, due to rebel attacks on oil installations in Nigeria.

    Political forces could also affect production in a range of other important oil-producing nations, such as Iran.

    Oil prices have already been on a wild ride in the past couple of years. After soaring last summer, they crashed back to earth as tough times caused consumers to pare back on everything from plane trips to goods that travel on container ships. Still, since February, oil prices have started marching upward again as traders anticipate the recession’s end.

    China’s growing demand for oil could push energy prices higher in the years ahead, says Paul Ting, a US-based energy analyst. As of May, imports into China have risen to account for 57 percent of the nation’s oil use. That makes China about as import-dependent as the US, which was importing 55 percent of its oil in the first half of June.”

    But I appreciate you trying to tie President Obama’s offshore drilling ban to the volatility of rising gas prices.

  2. Stu says:

    Taxes were listed as a contributing factor my friend…they account for, on average across the country, 10% of the cost at the pump. But the chart reflects crude oil prices, not at-the-pump cost.

    In the big picture it’s hasn’t been a wild ride in terms up and down.
    Here’s the stats on average diesel prices (at the pump) for the past 15 years. http://tonto.eia.doe.gov/oog/ftparea/wogirs/xls/psw18vwall.xls

    With some modest fluctuations, you’ll see it’s been a steady climb overall until the ban was lifted, which was followed by a rapid and dramatic drop. With the crippling effect high fuel prices have on our economy, I would think we would at least have allowed the downward trend to continue while we’re bailing out the automotive industry which was sunk, in large part, by those high fuel prices.

    Or if not, perhaps considering lifting the ban once again after seeing what was happening to fuel prices…if for no other reason than to rule out whether or not it was the lifting/replacing of the ban that was responsible for the changes in crude oil prices in the first place?

  3. bill says:

    So your theory is that simply saying that we were going to drill offshore brought down the world wide crude oil prices?

    Did you read the paragraph where the price of a barrel of crude rose $2 today due to rebel attacks in Nigeria?

    I’m just saying that the world economic crisis and foreign wars and Iran’s being upside down internally and uncertainty all around might have more to do with rising gas prices than an offshore oil drilling ban.

    Offshore drilling was a cute platform plank during the campaign last fall, but analysts agreed that drilling off our shores wouldn’t produce any viable result for decades and was not a short-term solution. Made great campaign fodder, but was a weak solution to dependece on foreign oil and rising gas prices at the time.

    The good thing about rising prices is it’s the only thing that makes most people conserve what gas and diesel they can afford. And when demand goes down, prices follow.

  4. torqdog says:

    Hmmmmm, looking at the graph Stu provided it looks pretty clear that our just saying we’re gonna do something to get our own supply of oil must have had something to do with the rise and fall of oil prices. One thing you guys left out was the “Speculators”. Remember them?

    Bill I agree with the offshore element not being the gold mine that some were trying to assert last fall. But when you take that and include the Oil Shale that experts have estimated to be a larger reserve than what is in the Middle East and sit there and do nothing tends to give those darned specualtors ammo towards ………. speculatin. And besides, when you have China in cahoots with Cuba practically sucking it out from under us while we ban drilling the same reserve due to what concerns_________, fill in blank, I have a problem with that!

    Bill, it seems there is ALWAYS some sort of political unrest somewhere in the world near a major “tap”. I “think” it was last fall that the Somali pirates commandeered a large oil tanker, yet prices continued their downward trend.

  5. Stu says:

    I’m not sure that my theory is 100% as you ask, exclusively. However it’s a fact that prices began to drop, dramatically and immediately, upon the lifting of the ban, and began to rise immediately upon its reinstatement. One might reasonably argue that it was simple coincidence if one or the other matched up perfectly, but both? Doubtful.

    I suspect that neither my conspiracy theory, nor your skeptical view of it, are completely accurate. I think there’s a bit of truth in both our opinions…but that would mean part of mine was legit…and any part of that is troublesome.

  6. bill says:

    It’s not surprising if you follow the volatility of the stock market, for instance. The most ridiculously banal incident can send the market up or down. I swear to god, if a barrel of crude oil falls off a cargo ship into the Indian Ocean, it sends shockwaves through the markets.

    Lemmings.

    Of course it’s possible that your theory is partly responsible for prices behaving as they have. To say that it is the major key flies in the face of industry analysts and current events affecting crude pricing. When I did a little research about rising oil prices, I couldn’t find any reference to off shore drilling having anything to do with it. Seventy-five other suspected causes.

    And I have to go back to: This administration’s been in office for 6 months. The crude oil fiasco and $4.00/gal gasolione has been going on for a little while longer than that.

  7. Stu says:

    Maybe it’s more directly linked to desired additional regulation of the stock market and derivatives trading, instead of the energy industry. Check out this CNN article from 6/16/09:

    http://money.cnn.com/2009/06/16/news/derivatives.oil.fortune/index.htm

    If fuel prices were not on the rise again, it sure would take some momentum away from this cause?

  8. bill says:

    Sorry, I got distracted laughing for a minute…Rush Limbaugh said yesterday that Mark Sanford’s hypocritical cheating on his wife and family was Obama’s fault.

    Now, what were you saying? ;-)

  9. Jane says:

    oh that was a few days ago Bill, yesterday he lied about the recent supreme court ruling calling it nine-zip as opposed to 5-4

    • Randy Spiker says:

      C’mon Jane. I heard that show and it is NOT what he said.

      Where in the heck do you guys find this stuff? Some left wing “truth detection” website? Can you say “taken out of context”? Same goes for you Bill. He was making fun at how everything negative that happens always gets blamed on Bush so he was having a little fun turning the tables so to say.

      • bill says:

        I said I was laughing, Randy. He’s really a very funny, thoughtful man, you know. Just gets taken out of context a lot. That’s why it was recorded, in its entirety. So they could present the exact recording of his words and take him out of context.

        And, frankly, I thought everything was still Bill Clinton’s fault.

      • Randy Spiker says:

        “And, frankly, I thought everything was still Bill Clinton’s fault.”

        Are you kidding? Everyone knows that it all goes back to tricky Dick! ^ ^

        —–

  10. Jane says:

    as far as the gas prices we have been thourgh this before, the dark market speculation , the secret checny energy policy meetings…

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