What can BO to lower gas prices?
Fuel prices are a big part of our
transportation costs. Most of us can’t get to work without some
motorized mode of transportation. Food is delivered by trucks running on
But what can a U.S. president do to lower the price? To answer that question, let’s look at the components of pricing gas.
According to the U.S. Energy Information Administration (EIA), the price of gas contains the following:
• Crude oil;
• Refining costs and profits;
• Distribution and marketing costs and profits; and
Seventy-six percent of gas prices is due to the average cost of crude
oil purchased by refiners. Crude oil is that mixture of hydrocarbons
existing in a liquid phase in natural underground reservoirs.
In layman’s terms it’s the black gold lying beneath the surface.
Refining costs and profits make up 6% of the gas price you pay at the
pump. The EIA defines refining costs as the difference between the spot
price of gasoline and the cost of oil purchased by refineries. By spot
price we mean the price for a one-time open market transaction or
purchase of a specific quantity of gasoline which is to be delivered
Taxes refer to the national monthly average of federal and state
taxes that are applied to gasoline. Taxes make up 12% of the price you
pay at the pump.
Distribution and marketing costs make up six percent of gas prices.
Distribution and marketing costs refer to the difference between the
average retail price of gasoline and the sum of refining costs, crude
oil costs, and taxes.
It’s the crude oil component that gets the most attention during any
discussion on gas prices. Critics of Mr. Obama’s gas price policies
would like to see the President focus on supply and demand of oil. For
example, ranking Republican member on the Senate Committee on Energy and
Natural Resources, Lisa Murkowski (R-AL), recently expressed that she
sees President Barack Obama as just parroting Republican proposals for
solving the nation’s energy price crisis.
According to Senator Murkowski the problem of rising gas prices is
primarily a supply and demand issue and President Obama’s refusal to
allow for an increase in drilling on federal land and drilling in the
non-wilderness areas of the Arctic Natural Wildlife Refuge (ANWR) has
led to the high energy prices we are seeing now.
Drill, baby, drill has been the battle cry of Mr. Obama’s critics. Does this battle cry amount to good policy?
In a 2008 analysis, the EIA acknowledged that drilling in ANWR would
have some impact on global oil prices. The impact, however, would not be
a large one.
EIA also expected to see a reduction in the United States’ dependence
on imported foreign oil, based on its 2008 analysis. Overall American
consumption for oil and gas would drop, however, even with drilling in
ANWR. The fall in demand would result from a possible reduction in oil
exports by the Organization of Petroleum Exporting Countries (OPEC) in
response to increased production in ANWR. In other words, OPEC would
make this move in order to keep oil prices high resulting in reduced
FOR THE LIBBYS THAT DO NOT BELIEVE THE PRES HAS ANYTHING TO DO WITH GAS PRICES...LOL
But even if there are some positive benefits, such as a reduced
dependence on imported oil, the EIA acknowledged uncertainties with
development in ANWR.
For example, there is uncertainty regarding the size of the
underlying resource base. We don’t know, in other words, how big ANWR’s
oil reservoirs are.
There is also uncertainty about the quality of the oil in ANWR. This
information is necessary to determine at rate i.e., barrels per day, oil
could be produced.
In the end, opening up ANWR will not only require approval by the
Obama Administration, but also the Congress. While a
Republican-controlled House may tend to support opening ANWR as well as
other outer continental shelf drilling, a Democratic-controlled Senate
and a Democratic president may be more amenable to the environmental
concerns held by the left wing of their party. Also, as long as the
economic benefits are minimal at best, insignificant impact on gas
prices may provide an additional argument for not taking any further
action on drilling.
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