The Truth About Gas Prices

A nice, compact article from USA Today about the economics behind rising summer gas prices here.



Some highlights:

• Refining capacity is tight, and not all production lost due to the hurricanes is back online
  
  
• Reformulation with ethanol instead of MTBE is raising prices
  
  
• Fears of instability in Nigeria, Iran, and Venezuela add about $20/barrel to the price of oil
• Speculation on commodities markets drives up the price as well
• Oil companies are not gouging customers, but are making large profits while passing on the high price to consumers
• Even with prices around $3/gallon, Americans aren't really changing their driving habits or car buying choices by much.
• Federal and State taxes add an average of $0.46 per gallon, with large variations in state taxes.

• Production:
  
  
• More exploration, more refining capacity. Drill in ANWR, drill offshore. Encourage refinery development.
  
  
• But Democrats, "moderate" Republicans, and Greenies are against this, so not much is happening to increase domestic supply.
• Depose Hugo Chavez, install a pro-capitalist government that will increase production. Nurture Iraqi oil production.
  
  
• Regulation:
  
  
• Force a common national fuel standard, or at least a split California/Federal two-formula standard to simplify fuel blending.
  
  
• Have the EPA relax emissions regulations on diesel engines, to allow low cost diesel vehicles.
  
  
• But California ARB and EPA have a higher priority on clean air than on fuel economy.
  
  
• Conservation:
  
  
• Americans could drive less, or buy smaller cars. Carpools.
  
  
• But not a popular choice, apparently--witness weak sales of large hybrids, solid sales of pickup trucks and new GM SUVs.
  
  
• Taxation:
  
  
• Federal and State fuel taxes could be lowered, or deductions added for middle to low income taxpayers.
  
  
• Yeah, just try to pry that dollar out of Uncle Sam's deathgrip!

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