Tuesday, May 15, 2007


It is often said that there are two constants in the world: death and taxes. Based on the news of late, I believe we can add yet another constant: than Americans will forever complain about the price of gasoline. I can recall a time when gasoline was relatively cheap, by any measure of economy. When I was in college (1989), I distinctly remember paying .82 cents/gallon for regular unleaded. Here in May 2007, it's nearly quadrupled.

I'm no different than anyone else. I have a monthly budget, based on the salary my employer pays me. The more I have to pay for gasoline, the less money I have for other things... be it necessities, or leisure spending. However, the nonstop drone of people complaining about the price of fuel has reached an all-time high. Today I saw a media poll asking "Should the government regulate gas prices?" The results are either astounding or horrifying, depending on your point of view: 76% of respondents answered "Yes".

Quite frankly, it's time for Americans to stop complaining about the Evil Big Oil Companies and pay more attention to who actually makes the most money from the sale of gasoline. So here are some facts about gasoline and the profits associated with it. In case you're a skeptic and don't care for these numbers, be aware that I've personally researched and sourced each one.

According to AAA, today's national average price of a gallon of gas is $3.087. In Cincinnati, I saw the price hovering around $3.15; it's higher in places like California, where laws requiring special blends of gasoline increase the price.

How much profit does Big Oil make for every gallon sold? According to Conoco-Phillips:
A multitude of factors can affect an individual oil company's profit on gasoline sales. However, data from the U.S. Energy Information Administration (EIA) indicates that when the average price of unleaded regular peaked at about $3 a gallon in the middle of 2006, major companies were making a profit of about 10 cents a gallon on their U.S. refining and marketing operations.

But let's not forget the tax revenue. The national average is 45.8 cents/gallon. New Yorkers pay the highest rate of 60.8 cents/gallon, while Alaskan residents pay quite a bit less of 26.4 cents/gallon.

So how much money are we talking about? The Energy Information Administration lists U.S. Motor Gasoline Consumption for March 2007 at 384,700,000 gallons per day. Yes, that's 11.9 Billion gallons used in that month.

We'll do some quick math for March 2007, using the national tax average of .458/gallon and the average oil company profit of .10/gallon.

Big Oil's Profit: $1,192,570,000
Local, State, & Federal Profit: $5,461,970,600

No, that isn't a typo. In March 2007, the government's profits on gasoline were 4.58 time greater than that of the oil companies - or, 4.2 Billion dollars more. And by the way, we're only talking about gasoline. Diesel fuel and heating oil also come from crude, and of course those are taxed as well.

You'll note that I've consistently referred to the government's tax revenue as "profit"... because that's exactly what it is: profit. The government doesn't spend money to search for the oil, drill for it, extract it, ship it to a facility to refine it, and finally ship it to consumers. Oil companies spend billions of dollars on research, drilling, shipping, and marketing... the IRS simply collects a check.

The naysayers will speak of "federal oil subsidies". My answer to you: do some research of your own, and you'll find that the amount of subsidies awarded by Congress is hysterically minuscule compared to the tax revenues received.

Oil companies make quite a lot of money... I've no argument with that. But the facts are crystal clear - it's not Exxon-Mobil earning windfall profits.

It's Washington.


Tanstaafl said...

"Federal oil subsidies" in the form of the Iraq wars and securing the world's shipping lanes would seem to me to far exceed the "profits" made by either the oil companies or the US government.

And all of that is dwarfed by the profits of the Saudis and other oil barons. Who turn that money around to fund our destruction. But that's another story.

I'll take my gasoline as cheap as I can get it, but to pretend the price isn't kept low by the grace of tremendous spending by the US military is sheer fantasy.

Mike @ MidwesternBite said...

I had a very similar discussion on my blog.

The first thing I ask people that talk about taming those evil oil villains is, "Can you explain to me the difference between profits and profit margin?"

Easiest way to tell a moron from a thoughtful person.

The profit margin for oil companies are substantially lower than most other goods/services.

As you point out, people that are calling for fascist price fixing should instead be calling for a reduction of tax burden.