Feeling gaseous

For the past few weeks, the price of gas has been significantly cheaper in the town of Tilton, which is about half an hour away from my baseline view of gas prices. The gas station about two miles from my house was at one point 15 cents more than the gas cost in Tilton. How weird is that? I also noticed that the majority of gas stations in and around Tilton were all within about five cents of each other, whereas the gas stations in my own immediate area were on the penny (and much higher.)

So, I wondered, do they price gas according to the socio-economic landscape of a community? That was my best guess for a few weeks, as I continued to monitor it and saw very little change in the great price divide.

Then I started to notice the divide grow smaller. Hmmm, I wondered, why is this? The price difference was so vast that I was filling up our fleet of cars exclusively in the "cheap" zone. Then one day I wasn't going to make it to Tilton on the amount of gas left in the car by dear daughter Maddie, so I had to buy it ::::gasp:::: at the pricey pump. Except that it really wasn't that much of a difference. Maybe five cents. Hmmmm. Hmmmmmm.

This morning the price of gas flipped! It was $2.47 in Tilton, and my local pump was offering it up for $2.43. Now seriously, what the hell? How exactly IS gas priced? Two weeks ago it was $2.26 in Tilton and $2.57 locally. Talk about fickle.

First off, the price of gas is rising because consumer demand has fallen. Isn't that the opposite of how it is supposed to work? Is the whole supply/demand foundation of economics not applied to the price of gasoline? It would seem not. According to "most energy experts," (which in my opinion falls into the same category as "9 out of 10 dentists") they see no fundamental reason for rising prices and doubt that prices will spike to the record $4.11 that they did last summer. (Which last summer? I don't remember prices being that high in the closest summer I can recall of a few months ago?????) Hey, they are the experts ... (further investigation reveals that the experts are referring to 2008 gas prices. Further investigation BEYOND the article I was reading, I must add, snarkily.)

Now we are going to get all newsy:

The U.S. consumes about 20 million barrels of oil products per day, half of which is used for motor gasoline. So, 10 million barrels roll out (I couldn't resist) into the world purely for the use of getting us from here to there. Each barrel of oil contains 42 gallons which yields 19 to 20 gallons of gasoline. (??????) Good heavens. How much do I want to know? Well, let us continue with this branch of discussion. So that means that there is something like 178 million gallons of gasoline consumed daily. Not hard to imagine if you've ever sat in traffic in California or Chicago with cars as far as the eye can see four to five lanes deep.

Typically in the summer there is more demand for gas because people go on vacation. This makes sense, and the price of gas goes up. Again, mean, but it makes sense! But ... prices do not ALWAYS go up in the summer. Prices beyond the summer can continue to rise due to certain circumstances, such as Hurricane Katrina, which pushed prices up to $3.07 a gallon in September, 2005.

Prices rose to the record high of $4.00 in the summer of 2008, which encouraged people to drive less, which in turn drove down demand, and subsequently, prices. (So the supply/demand theory was in play in the summer of 2008.) But then ... things changed.

Prices increase when the world crude oil market tightens and lowers inventories, which is what is happening now. And to understand that, we need to know where the money goes. Are you ready?

When you pump $30 (if you are lucky, all you non-SUV drivers) into your tank, that money is broken up and goes to many places. (So stop thinking the gas station owner is getting rich!) There is a supply chain and several groups who are responsible for setting prices. The media (blast them again!) can lead you to believe that it is the price of crude oil that sets pump costs, but it's not that simple. Here is an approximation of where each dollar you spend on gas goes:

Taxes: 11 cents

Distribution and Marketing: 6 cents

Refining: 10 cents

Crude oil Suppliers: 73 cents.

And of course the gas station, though that is sort of all over the map (which explains the fluctuations in prices that you see from town to town.) And while it feels natural to blame the gas station owner's, they typically only add on a few cents per gallon, and while there is no set standard for them in terms of what they can charge, many states have mark-up laws which prohibit stations from charging more than a certain percentage over invoice from the wholesaler. These laws are designed to protect small privately owned stations from being driven out of business by large chains that can afford to cut prices at select locations.

Other reasons for cost fluctuations include distance from refineries; world events; war; weather and prices also vary between states because of different tax impositions. And a new reason emerged in 2007 when Washington legislated to incorporate more ethanol into transportation fuels.

And let's not forget OPEC -- the Organization of the Petroleum Exporting Companies, which is a consortium of 13 countries: Algeria; Angola; Ecuador; Indonesia; Iran; Iraq; Kuwait; Libya; Nigeria; Qatar; Saudi Arabia; the United Arab Emirates and Venezuela. Together they are responsible for 40 percent of the world's oil production and hold the majority of the world's oil reserves. When OPEC wants to raise the price of crude oil, it simply reduces production, which then causes gasoline prices to jump because of the short supply (but then again because of the threat of possible future reductions). When oil production dips, gas companies get nervous. So the mere threat of oil reductions can raise gas prices.

Beyond OPEC there are several other countries that contribute to the world's crude oil supplies, including the U.S., Mexico, Canada, Equatorial Guinea, Russia and China. OPEC tracks the oil production of these nations and then adjusts it own production to maintain its desired barrel price.

Is this getting boring? LOL.

What it comes down to is that there are NUMEROUS forces that affect the price of gas at the pump, but this week there is no strange weather and no new war, so I guess we have to train our gaze at OPEC. Prices were perhaps getting too low?

But it's still more complicated than that. The U.S. is the third largest producer of crude oil, and yet we are still heavily dependent upon foreign oil. And then there's that oil in the Arctic National Wildlife Refuge. To drill or not to drill, that is yet another question.

So while I don't feel I've answered my own question of why the price of gas is all over the map; in a way I understand that it's not a question easily answered. It might make more sense to just accept it. Like the two-year-old question of "Mommy, why is the sky blue?"

To which you respond, "it just is."