Many factors contribute to escalating gas prices

There is plenty of blame going around for the skyrocketing prices, with much of it falling on the big domestic oil companies. That’s understandable, considering Exxon Mobil Corp. and its record $339 billion sales in 2005 supplanted Wal-Mart as the country’s biggest company, according to Fortune magazine.

But Missouri State University economist Tom Wyrick said just blaming oil companies is too simple.

He said many factors have led to a temporarily weakened worldwide supply while worldwide demand increases with emerging economies such as China using more gasoline.

“It’s kind of that perfect storm deal,” he said. “It’s not any one thing; it’s just a whole bunch of things.”

John Felmy, chief economist for American Petroleum Institute, the voice of the oil industry, said three factors have made gasoline expensive:

Crude oil prices are high and are a bigger piece of the pump-price pie than they used to be. Crude oil prices are now about 55 percent of the price of a gallon of gasoline, versus 47 percent in 2004, according to the U.S. Energy Information Administration.

Changes in gasoline formulation requirements to reduce sulfur levels from 300 parts per million to 30 parts per million have cost refineries $8 billion to implement over the last three years.

A shortage of ethanol in an ever-demanding ethanol market, fueled by local and state governments instituting E-10 requirements.

“The biggest (factor) is crude oil,” Felmy said. “That’s really the biggest cost component, and it’s one that’s really less understood by the average consumer.”

He said oil costs more than $2 per gallon before it’s even refined, marketed or distributed. Add to that average U.S. taxes of 45.9 cents per gallon and the price gets pretty high before it even gets to the gas station.

Felmy dismissed the notion that oil prices are set by the domestic oil giants, such as Exxon Mobil, Chevron and ConocoPhillips.

Instead, he said, oil prices are determined through an international market of thousands of buyers at exchanges in places such as New York, London and Singapore. He said oil investors and prospectors, and banks and governments play a big role in determining the price.

“The individual (oil) companies are mostly net buyers, because (domestic companies) only produce about one-third of what we use in this country,” he said.

Howard Fisk, owner of J. Howard Fisk Limousines, and Brett Sheets, operations and traffic manager for Mueller Transportation, a division of Paul Mueller Co., are more acutely affected than the average driver. Their businesses burn thousands of gallons of gas every month.

“Ouch, ouch,” Fisk said. “The fuel prices are terrible. We’re seriously affected in a very adverse way by the fuel prices.”

Fisk said gasoline usage, usually to the tune of 500 gallons per day for his 100-vehicle fleet, impacts his bottom line more now than it did when he started 30 years ago in the midst of soaring 1970s fuel prices. Without disclosing his monthly gas expenses, Fisk said he plans to use more efficient vehicles. He also supports ethanol standards as a way of conserving fuel and keeping the air clean. He’s replacing 14 of his MSU transit-system busses next school year with vehicles with more efficient engines. He said hybrid vehicles aren’t available in the large, passenger-carrying styles he needs yet.

“Gosh, renewable energy is where we ought to be,” he said, referring to the corn-produced ethanol. “It’s our responsibility to be as green as we can.”

Mueller’s Sheets said his outfit operates 17 long-haul trucks. Mueller Co. spent $62,000 in fuel in February, compared to $36,000 in February 2005. The company surpassed its $80,000 March fuel budget by $7,000.

Sheets said he believes oil companies do play a large role in gas prices.

“My main belief is that (oil companies are) trying to equalize us with the European markets,” Sheets said. “Americans have paid less than the Europeans and other countries for years, and I think the oil companies are bringing us up to be a global market.”

Still, MSU’s Wyrick said not all is doom and gloom.

He maintains that the world economy is strong and that oil price increases aren’t an isolated example of inflation. He said all industrial materials – steel, concrete and copper, for example – are experiencing price increases in a growing world economy.

Gas prices just seem worse, he said, because gas is a consumer good.

“They put the (gas) price on those huge signs out on Glenstone, and everybody drives by it and thinks about it,” Wyrick said. “If they put the price of concrete or carbon steel out on a 10-foot sign out on Glenstone, then we’d be going, ‘Oh my God, look at that.’”[[In-content Ad]]