NAC: FUEL $ audi20v digest: March 12, 2003

Thu Mar 13 09:54:05 EST 2003

>We (Northern New England) pay some of the cheaper prices in the country except for SC/Georgia.
>What catches my eye is the "proud" boasting from Hess or -IRVING- and similar companies who claim
>that their crude comes from Canada or other NON-Middle eastern countries Vs. Exxon/Mobil, Shell

Haven't seen this boasting, but I wouldn't believe it anyway.  Oil prices are determined by a "world

>But I though about it and really felt that their prices should reflect that by 10 cents or so not
>a penny.

I believe that roughly 40% of the price of a gallon of gas is attributable to the cost of crude and
the rest is attributable to everything else.  That is to say if a gallon of gas is $100, then 40% or
40 cents of that reflects the cost of raw materials.  On that basis, if crude costs 25 a barrel and
costs 40 cents a gallon at the pump, then when crude costs 40 a barrel, then the factor is
40/25=1.6, applied to 40 cents= 64 cents, so at least in theory, all other things being equal, even
a 60% increase in the price of crude would result in a 24% increase in prices at the pump, or a
price of $1.24.  Someone explain to me in a relatively inelastic market where most supply and demand
equilibrium is determined by the price of raw materials, why the oil companies would have you
believe that all other margins on the cost of doing business must necessarily rise at a rate FAR in
excess than that of the raw materials (especially during a weak time in the economic cycle).  The
answer is; they don't.  I have no problem with capitalism.  If you want to get rich selling oil, go
for it by all means.  Please just don't tell me that your hands are tied because of the price of
crude.  It's just not so.

>Either way the Europeans and the Candaian Liter purchasers aren't gonna feel for our pump >

Most of the higher expense of gasoline in Europe and Canada is tied to taxation.  European and
Canadian Gov'ts by and large have sought to alter the supply and demand curve by attempting to
incorporate the "true" cost of petrol (roads, other infrastructure, regulation, licensing, social
costs, etc) into the price of a gallon by adding a user tax.  We haven't allowed our fiscal policy
in the United States to do that.  We've made a choice (we DO elect the policy makers).  We don't
impose a true user tax by the gallon, we impose the costs on society as a whole.  People that use
"more than their share" so to speak, benefit, those who use less suffer.  The same way vegetarians
pay for our gov't's liberal policy on federal land use by ranchers and keep Delmonico's down to $5
or $6 a lb, while vegetarians pay the "true cost" difference for something they never eat, so it is
with gasoline and those who ride bicycles.  Whether we rationally choose to make this choice by
voting or allow powerful oil interests to sway those who we elect is a whole 'nother kettle of fish.

By the way... look at who now owns the majority of "filling stations" now and my idea about
boycotting the stores may have more merit.

Well, my sandwich is gone. Time to get back to my studying.

-Royal aka 16RoT

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