The 5 Reasons Why Americans Believe Gas Prices Are High

Gas prices are high and they will continue to go up and they will stay there. There is no question about this fact but lately I have been hearing a lot of reasons why the price of gas have been increasing in the last few months. Many of the reasons are just plain silly or do not have any substance behind them. I have heard things such as oil company monopoly, conspiracy, greed and the list goes on. The truth is everything we spend money on has been going up in price since mankind has been selling manufactured goods. Oil on the other hand is a different story because its price is sensitive to the smallest events that happen in the world on a daily basis especially in the Persian Gulf and Middle East regions and it affects the way of life for just about everyone in the world because we absolutely need it in one form or another.

Americans are more sensitive to these price increases because we have been living on cheap oil while the rest of the world have been paying much higher prices for years. What it all comes down to is that we are spoiled. This is why we complain the most about it. In this article I will present five of the main reasons people in the United States believe is causing the increase in oil prices. Unfortunately, these are not the reasons based on facts I gathered from various sources such as newspapers, internet, and other information sources. Americans believe gas prices are higher because:

This first reason is the most popular one I am hearing just about everyday around my hometown in the United States. But it is not Libya that is causing the increase. Libya does not supply that much oil globally for the fighting there to affect oil prices. Libya was supplying us with 700,000 barrels of oil daily back in the 70s and 80s but now supplies us with 50,000 barrels daily. In 2010 United States imported 9.2 million barrels of oil from other oil exporters and as you can see the U.S. only receives about 0.001% of it oil from Libya. Worldwide 86 million barrel of oil is consumed daily and a little less than 2% of that is coming from Gadhafi’s regime. It will do him and his regime more harm to blowup his own oil fields than it would to the world.

The price of gas is increasing because there is tension in the Persian Gulf region where 25% of the world’s oil is coming from the 24 million barrels of oils produced in the region daily. The unrest in Syria and Iran's nuclear program had made the market nervous because anything can go wrong there to cause a disruption to oil production. Iran has already cut off oil supply to some European countries to fight against the sanctions imposed on their country by the European Union. The disruption of oil supply doesn’t have to happen to raise oil prices it is just the possibility of it happening that makes the market nervous. The world oil market set the prices not the oil companies since it is a commodity like gold and silver where oil speculators invest their money in. The price of oil is the same all over the world it is different at the pump because other cost such refinery, shipping, government cost (both local and nationally) etc. are added after the price is set by the speculators.

There are 727 million barrels of oil in storage in the United States for emergency use in case there is a serious disruption in oil supply from our wells and from other countries. This oil reserve would only last for about 38 days at the current daily consumption rate. This is not a long time. All our cars, trucks, buses, planes, and trains will be of no use to us after about month if we relied on just the oil from the reserve. The economy here would be in serious trouble if that were to happen. We can’t just tap into our oil reserves to keep the oil flowing and to bring down the price. The price drop if any would only be temporary.

Politicians have always been screaming to Presidents to tap into the oil reserve to siphon out oil to bring the oil price down when it goes up rapidly but that is not a wise choice. Senator Charles Schumer, a New York Democrat, tried to push President Bill Clinton in 1999 to make this move but to no avail when oil price for a barrel of oil shot up to $25. (I am laughing here.) Had Bill Clinton done this and consumed a lot of oil at the $25 price he would have to replace that oil later at the more expensive $75 per barrel price. This action would have made the United States an oil speculator at a time when the country was facing record deficit thus worsening the economy.

The Strategic Petroleum Reserve exist for one reason only and that is to buy us more time in case there is an actual disruption in oil production not as political tool to make voters happy by bring the price of gas down. Most of that oil will be supplied to the military and emergency organizations first before the rest of us get it in our gas tank. Also, if we were to use it we may be forced to buy oil at a higher price and we may not be able to replace all of what we use in time for a real situation.

Everyone seems to blame the President for driving up the prices of gas. Sarah Parlin says the drilling moratorium shows President Obama’s “culpability in the high gas prices hurting Americans.” Sarah Parlin is right, high gas prices are hurting Americans but the President cannot do absolutely nothing about it. Even if we were to increase our domestic oil drilling off the shores of the lower 48 states which are currently off limit for development. We would have access to an estimated 18 billion barrels of oil which would only last for 30 months and it would takes years to issue leases and do exploratory drilling to tap this vast reservoir of oil. This will have no impact on our supplies of gasoline until a decade later. The fact is Obama or any other President in the future cannot control how much we will be paying for gas tomorrow or even ten years down the road.

We always notice an increase in the price of gas when the spring season kicks in. People always blame the oil companies thinking they are intentionally keeping oil inventories low to drive up oil prices for increase profits. Well that is not the reason for the increase. It is what is in the gasoline, specifically butane. The level of this hydrocarbon in gasoline various from season to season due to changes in temperature. Butane has a much lower boiling point than gasoline; therefore it evaporates from the gasoline much faster in the summer months than it does in the winter months leaving less gasoline in your tank than you paid for. Believe it or not the oil companies are helping us here. They eliminate this problem by replacing the cheap butane with an ingredient that happens to be more expensive and does not evaporate as fast as butane.

The other reason gas price increases during this time is because the winter inventories of cheaper oil is eventually used up and is being replaced with the more expensive gas during the approaching summer months. Chemistry is the reason oil prices increase in the warmer months not the oil companies, as many people believe is the case.

In the United States people like to drive and they do a lot of it. Also, a significant number of people prefer to drive humongous, gas guzzling SUVs because gas is cheaper here compared to what the Europeans have been paying for years and most Americans know that.

Gas prices in the in the U.S. have pretty much stayed under $4.00 until the recent increases due to the nervousness coming from the oil market. Europeans have been paying much higher prices for years because of the high taxes included in their fuel prices and recently in Britain prices have risen to about $9.76 per gallon. This is one of the main reasons every driving age individual in Britain and in the rest of Europe does not drive a car. Europe’s per capita energy use is half that of the United States which is why we seldom hear Europeans complaining about the price of fuel. They are not as vulnerable as we are to sudden increases in gas prices.

The United States is in a more vulnerable position because this country was built on cheap oil prices over the last century. Every 50 year old or older person in the United States remembered what happen in the 70s when gas prices shot up through the roof. American car companies shrunk the size of all their cars to improve gas mileage. People stop buying the big cars. Then a few years later when the prices drop they turn around and increased the size of the cars to what they are today and later introduce the world to large SUVs. Obviously, we did not learn our lesson about increasing gas prices and what effect it had on our economy and life.

Furthermore, there are more open spaces here to travel across and the U.S. has a much less population density than the European countries where public transportation systems such as high-speed rail and green energy technology are much more developed in these countries to help keep their fuel bill cost down. Eventually, the U.S. will have to do the same things to decrease our dependence on imported oil.

Despite all of the complaining from past increases in fuel cost, Americans have adjusted their behavior to decrease their spending on fuel. When gas prices rose from $2.30 per gallon in 2005 to $3.30 in 2008, sales of the Toyoto Prius exceeded the sales of the big Ford Explorer and the use of public transportation reached a 50-year high. The one-millionth Prius was recently sold in the United States and the demand for them is still high. That demand will stay high when it cost $30 to fill a small Geo Metro with regular gas. There are plenty of options here including the fact we need to stop building and selling humongous SUVs in the United States. Do one or two guys need to commute 25 miles or more to work in one of these?

References:

The Washington Post, The Star-Ledger (NJ based newspaper), Wikipedia

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