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Why Big Oil Is to Blame for High Gas Prices

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http://www.investmentcontrarians.com/stock-market/why-big-oil-is-to-blame-for-high-gas-prices/955/ While oil prices have fallen to the $85.00 level, the price of gasoline continues to be stubbornly high, and you can blame this on the greed of the big oil companies.

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Why Big Oil Is to Blame for High Gas Prices
By George Leong for Investment Contrarians | Nov 6, 2012




While oil prices have fallen to the $85.00 level, the price of gasoline continues to be
stubbornly high, and you can blame this on the greed of the big oil companies.

Despite the decline in oil prices, it still costs me over $100.00 to fill up my gas-guzzling
SUV.

According to the U.S. Energy Information Administration (EIA), the price of regular
gasoline averaged $3.57 per gallon across the U.S. as of October 29, which is still well
below the historical average U.S. high of $4.11 per regular gallon reached on July 18,
2008.

If you live on the West Coast, the cost of gas is staggering, at an average of $4.04 per
gallon.

In my view, the price of gasoline makes little sense at the current level. Again, blame the
oil companies and speculators.

Go back to July 2008, when gasoline was at $4.11 per gallon. The World Texas
Intermediate (WTI) oil prices at that time peaked at $145.00 a barrel, so the high gasoline
prices at that time made sense. During the recession, WTI oil prices fell to $30.28 a
barrel. On Monday, WTI oil was prices sat at $85.00 a barrel.

In my view, there is absolutely little connection between oil prices and gasoline; but then
again, maybe I’m missing something? Perhaps the oil companies aren’t greedy, and it’s
just a bad rap? The reality is that the government accounts for 11% of the cost of
gasoline, with nine percent for distribution and marketing, 18% for refining, and 62% for
the cost of the crude. (Source: U.S. Energy Information Administration, last accessed
November 5, 2012.)

In other words, the oil companies are lining their coffers at the expense of the consumer.
With gasoline prices holding at the pumps, the jump in fuel costs will likely impact the
disposable income of consumers at a time when consumer spending is under pressure.

There is some “price elasticity” for gasoline prices in the short term, as movements in
prices tend to be “inelastic” since consumers minimally alter usage. In the short term,
driving may be cut and the use of public transport will rise. There could also be a
decrease in road trips, which will have an impact on the hospitality business, such as
hotels and restaurants.

You could move to Venezuela where the government-supported oil prices have resulted
in the price of gasoline at $0.18 per gallon. (Source: “Why do tax prices vary state to
state? It’s not just taxes,” The Christian Science Monitor October 9, 2012.) However, I
doubt many of you would go to this extreme.

Another alternative would be to push your government representative to increase the
focus on alternative fuels.

Of course, the situation could be worse. Canadians paid a whopping average of around
$5.09 a gallon. Gas prices in Europe are sky-high. Italy has some of the most expensive
gas in the world at around $9.19 per gallon, which is probably why there are so many
mopeds there. (Source: “Petrol Prices Around the World, October 2012,” MyTravelCost,
last accessed November 5, 2012.)

The problem is that America is dependent on foreign oil to satisfy the country’s immense
thirst for gasoline. The greedy oil-cartel Organization of Petroleum Producing Countries
(OPEC) controls much of the world’s oil; it dictates global oil prices by adjusting its
production quota when these ultra-rich oil tycoons wine and dine at their regular
meetings. Gas prices in these OPEC countries are some of the lowest in the world, which
shouldn’t be a surprise.

The reality is that oil prices must be controlled and gasoline prices should be regulated.
Don’t open up the country’s oil reserves. The Keystone oil pipeline from the Canadian tar
sands will help, but the environmental impact from oil sands oil is a major issue.

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