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Sunday, May 18, 2008

Oil industry insider steps out of the shadows

There was an interesting article on yesterday's op-ed page by the executive director of the Illinois Petroleum Council, a lobbyist organization. Usually, these Saturday "In My View" columns are used by people to vent their feelings on an issue, or lash out at certain politicians, or something like that. This particular article is different, though, in that it presents facts as the writer sees them, and wants us to see them.

In My View: Gas prices determined by 5 factors: I want to explain some issues regarding our national pastime. So, is this a column about baseball? Football? Nope! It�s about our real national pastime � gasoline price obsession.

After 32 years on the front line explaining gasoline and diesel prices in literally thousands of interviews and testimony about industry activities here in the fourth-largest oil refining and transporting state, I feel I�m qualified to make that observation. Let me present a five-factor matrix that explains gasoline prices.

Who knew Illinois was the fourth largest? He doesn't tell us which are the other three. Without looking it up, I'd guess Texas, California and Louisiana.

His five factors, without the lengthy explanations, are:

  1. The biggest factor in gasoline prices, almost 58 percent, is the cost of crude oil. Crude oil prices are skyrocketing, but only recently at inflation adjusted highs.
  2. Taxes are the second biggest factor in gasoline prices. The federal gas tax is 18.4 cents and Illinois adds 19 cents. Unfortunately, Illinois is one of only nine states that charge a sales tax on gasoline and the only one I know that allows additional local gas and sales taxes.
  3. The third factor in gas prices is about making the fuel. Price-wise, Springfield is fortunate not to have to sell special low-polluting fuels as Chicago and St. Louis do. They�re the world�s cleanest fuels but much more expensive.
  4. The fourth-biggest factor in prices is the cost to establish and maintain the retail outlet. There are more than 5,000 service stations in Illinois and most experts believe gasoline sales are often a �loss leader.� Springfield is increasingly affected by large general retail chains selling gasoline.
  5. The final factor in gasoline prices are earnings. Major oil companies earned a little above the U.S. industrial average, 8.3 percent, on gasoline for 2007. No doubt, 8 percent earnings represent billions in profit.

As expected, many of the commentariat disagree. Personally, and even though I don't understand much of what he says, I think he's right. Whatever the case, the days of cheap gas are gone for this country. It's where we go from here that matters. Easier said than done, obviously.

Posted by Marie at May 18, 2008 5:39 PM


i did some calculations and after the conversion from liters to gallons and zlotly (polish currency) to the american dollar, gas costs approximately $7.80 per gallon of petrol/gas in Poland. could you imagine that? i think other than being a really poor country, that is why they drive very compact cars, if at all. to paraphrase the president: the people will figure out a way to deal with it and when they quit buying as much gas the prices will go back down. i know much of it is supply and demand, but i still cant figure out why people drive hummers that only get 13 mpg? that could be part of the problem. and i know it is not the nature of our government to control the type of autos people are allowed to drive, but what else is there? it makes me love my beat up old honda, that i never drive anyway.

Posted by: allie at May 19, 2008 12:29 AM

Paul Krugman has a column in The New York Times today (here) that talks about gas prices in Germany: more than $8 a gallon. Of course, because of the taxes imposed on gasoline in Europe and elsewhere, gasoline has been a lot more expensive there than here. Krugman also observes that people in Germany generally drive smaller, much more fuel efficient cars than the ones we buy. Also, they drive less, because they have access to excellent public transportation. And their cities are more compact (more heavily built), so people don't have as far to travel for work and shopping, etc.

As to the oil guy's apologia for his industry: those people sing the same song out here. We could have cheaper gas if we didn't tax it, if them darn regulators didn't make the process of refining gas so darn complicated, and whatever you do, do NOT pay attention to what you read -- the oil companies are NOT making a lot of money.

Posted by: Dan at May 19, 2008 12:36 PM

Even as I wrote the words, I realized I'd let him off too easy.

Posted by: Marie at May 19, 2008 11:13 PM