Why It Costs So Much To Fill Your Tank


So earlier this week, oil company execs got a chance to explain why gas prices have topped $4.00 a gallon and what they plan to do about it. Stop me if you’ve heard any of this before:

  • It’s the law of supply and demand: demand is high, supply is low.
  • Those punitive taxes are killing us.
  • The feds won’t let us drill in the Arctic National Wildlife Refuge.
  • Greedy, selfish countries where the oil industry is nationalized are hogging all the best reserves.

James Ridgeway puts these tired excuses to rest:

Oil companies are trying their best to promote the highly counterintuitive idea that what’s good for Big Oil is good for America. As Peter Robertson, vice chairman of Chevron, told the Senate Judiciary Committee in May, “Americans need companies that can effectively compete for access to new resources. Punitive measures that weakened us in the face of international competition are the wrong measures.”

In denying responsibility for high fuel prices, the oil execs also evoked the ultimate mantra of the free market. “The fundamental laws of supply and demand are at work,” said Shell president John Hofmeister—meaning, there’s less oil and more people want it so the price has to go up. The law of supply and demand, however, is not a natural, immutable law, like the laws of physics. It is simply a way of describing the relationship between buyers and sellers in the marketplace. That is, sellers of an in-demand product can charge higher prices for it, but they don’t have to do so; they could choose, instead, to trim their own profits—or at least pay their fair share of taxes. Before the judiciary committee, ExxonMobil VP J. Stephen Simon insisted that “it’s not our profitability in this business that is driving the higher prices that consumers pay.” This despite the fact that ExxonMobil alone reported $10.9 billion in earnings for the first three months of the year, up 17 percent over 2007, while BP’s profits rose 60 percent, Shell’s 25 percent, ConocoPhillips’s 17 percent, and Chevron’s 10 percent.

In fact, there’s plenty that could be done to ease the burden on consumers. A proposal from the Center for American Progress, to name just one, calculated that simply by closing several tax loopholes and collecting royalties it is due on oil and gas extracted from public lands, the government would have enough to fund a substantial fuel price “reliefbate” for low- and middle-income Americans. (The Center’s plan doesn’t even include a windfall profits tax, which, if instituted, could be used to exponentially increase the government’s investment in renewable energy.)

Nonetheless, Big Oil seems to have had some success in framing the debate over who is responsible for high gas prices, advancing not only the laws of the marketplace, but the bogeyman of the big nationalized foreign oil companies. “Government-owned national oil companies dominate the top spots,” Exxon’s Simon told the judiciary committee. The argument, now popular on both sides of the aisle, is that state-owned outfits control most of the supply and have their comparatively puny American counterparts over a barrel. (Only California’s Maxine Waters dared, at a House hearing, to suggest that the United States might try nationalizing its own oil industry.)

It’s been Big Oil’s long-standing contention that the rapacious state-owned Middle Eastern, African, Asian, and Latin American oil companies are responsible for the price gouging. But this is a dubious argument. The United States is currently the third largest oil supplier in the world, following Saudi Arabia and Russia, as well as the single largest consumer. Tyson Slocum, the director of Public Citizen’s energy program, says that on any given day ExxonMobil alone produces as much petroleum as the kingdom of Kuwait. US oil companies, of course, all have a hand in exploitation within many of the very state enterprises they decry, through outright contracts, service contracts, production agreements, and joint ventures. Currently, ExxonMobil, Chevron, and Shell, among other oil companies, are zeroing in on service contracts that will open the way for them to begin producing oil in Iraq.

Meanwhile, John McCain told the Orange County Register that he can’t remember the last time he bought his own gas, doesn’t know the price of gas, and doesn’t think it matters.

Apparently, the news media agrees:

… if Obama had said it you would hear about nothing else on the Sunday talking heads shows and it would be on the front page of all the major papers. But St John gets a pass.

Chris Kelly teases out the significant points here:

1) John McCain doesn’t know what gas costs, because the Secret Service protects him from finding out, possibly because they’re afraid the knowledge will kill him. Not a healthy man.

2) John McCain isn’t an elitist or a big government bureaucrat. He’s a maverick who has certainly pumped his own gas at some point in his life, perhaps during the single 18-month period when he wasn’t in the navy or in congress, but was living off his wife.

3) It doesn’t matter. How do we know it doesn’t matter? Because John McCain says it doesn’t matter.

4) John McCain may not know what gas costs or when he last pumped any, or performed any other act not connected to politics or outpatient care, but he’s had hundreds of town hall meetings, many as short a time ago as yesterday. Which somehow answers questions about gas prices, but it’s not clear exactly how.

5) John McCain communicates with people and they communicate with him very effectively.

6) John McCain is an excellent driver. Dad lets him drive slow down the driveway every Saturday.

7) Fifteen minutes to Wapner.

This kind of thing can hurt a candidate,” says Joe Gandelman. (Only if you’re the Democratic candidate, Joe.) Nevertheless:

Not pumping it is one thing. Not knowing it is another. It can and most likely will be used against him in a court of political battle. Big mistake. If his handlers are smart, they’ll make sure he knows the average price of gas in the U.S. every single day until the elections.

I don’t think that would work, either. He’d forget it by the time he got up to the microphone.

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