Gas Rises While Oil Declines

So, like most Americans, I’ve been grumping about gasoline prices for quite a while now. I’ve watched the price of gas spiral upward, and the resulting inflation throughout the economy due to the increased costs of distribution and travel. I had to buy gasoline today, and I while I was at the pump, I began to get angry. Not just frustrated, but genuinely angry, and I decided to do a little digging into what the cost of refining, distribution, and marketing gasoline is.

Let’s go on a little journey, shall we?

In March of 2008, the national average retail price of gas was $3.24.4 USD per gallon.

$2.32.9 ( or 71.9% ) of that price represents the cost of crude oil.

$0.26.0 ( or 8% ) represents the cost of refining the crude oil.

$0.25.6 ( or 7.9% ) represents the cost of distribution and marketing.

$0.39.9 ( or 12.3% ) represents the various taxes applied.

The biggest fluctuation in the price of gas, especially in recent years, has almost always been the cost of crude oil. Let’s take a look at where the crude oil comes from.

Just for fun, let’s look at the cost of crude oil for our March 2008 gallon of gas and figure out the cost based where we imported it from:

48% ( or $1.11.8 dollars worth ) came from the Western Hemisphere.

22% ( or $0.51.2 cents worth ) came from Africa.

18% ( or $0.41.9 cents worth ) came from the Persian Gulf

12% ( or $0.28.0 cents worth ) came from various other regions.

Isn’t that interesting?

Want to hear another interesting little tidbit?

When I got my driver’s license in 1992, the national average retail price for a gallon of gasoline was $1.09.8. Not too shabby, eh? 7 years later, in 2001, the national average was $1.42.0 per gallon. That’s an increase of $0.32.2 per gallon, a hair under 30%, over the course of 7 years.

Now, compare the increase in the price of gas from 1992 to 2001 with the increase from 2001 to 2008. The national average retail price of gasoline in the month of April, 2008 was $3.45.8 per gallon. That is an increase of $2.03.8 per gallon over the course of 7 years… an increase of over 240%!!

Gasoline prices are not going to go down. In fact, they will continue to rise indefinitely.

According to the Energy Information Administration, if we were to assume that the world’s oil consumption in 2005 of about 27 billion barrels continiues at the same level into the future, then the estimated world proved oil reserves at the end of 2005 of about 1,293 billion barrels of oil will last about 48 years. That means, if the world uses the same amount of oil annually that it did in 2005, we will run out sometime around the year 2050.

Of course, we know better than that. We know that the demand for oil has increased since 2005, is still increasing now, and will increase into the future.

Gasoline prices are not the only thing we will see increase. Many items are derived from the refining of oil: tires, rubber, candles, adhesives, corrugated board, cosmetics, asphalt, polyvinyl chloride (PVC), polyethylene, polyester, polystyrene, nylon, just to name a few. As oil becomes more and more scarce, these products will become more and more costly to produce. Add to that the directly related rising cost of shipping, travel, and commuting, and we have a dreadfully serious set of problems on our hands. Have you noticed the rise in the cost of food lately? Another hike in the cost of postage?

Folks… this is not science fiction. This is not a made-for-TV drama. This is frighteningly real.

I turned 33 years old last month, and I will see the world run out of oil in my lifetime.

Will the world be ready?

Will you?

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