| Editorial: Gas Tax Holiday for "Big Oil" |
| Tuesday, May 6, 2008 4:41:54 PM - Middletown Ohio |
Local man states his opinion on Senators John McCain's and Hillary Clinton’s proposal to give everybody a Gas Tax Holiday due to the high gas prices that everyone is facing.
Gas Tax Holiday for "Big Oil"
By Doc Howard
Senator's John McCain and Hillary Clinton's recent proposal to temporarily suspend the federal gasoline tax will only turn out to be a holiday for "Big Oil". For Adam Smith’s invisible hand is always there to collect its due.
The price of gasoline is normally tied directly to the price of oil, ie:1 bbl. of oil will produce 42 gal. of gasoline.
Under typical circumstances a $10 increase in oil will produce about a $.25 increase in the price of gasoline.
Chart #1
source: barchart.com
The above (chart #1) shows the % increase in the price of oil (green) vs the % increase in the price of gasoline (red) over the last year. It is blatantly apparent the price of gas has not kept up with the increase in the price of oil. At the current price of oil ($120), gasoline should be approximately 80 to 90 cents higher. This “cheap” gas is not due to the benevolence of the refiners. But is the direct result of the current US recession, along with an increasing price of gas forcing a decrease in demand, (chart #2).
The net result is major oil refiners are not making as much profit as normal and the refining margins have decreased to the break-even level, (major refiner profits have decreased 80% in the last year). This is forcing the refiners to cut back on production (chart #3) due to the inability to push through the price increase of oil.
Chart #2
source: tonto.eia.doe.gov
source: tonto.eia.doe.gov
The net result of implementing the “GAS TAX HOLIDAY”, thereby decreasing the price of gasoline by 20 cents will be:
• Demand for gasoline will increase.
• Big Oil will push through a gasoline price increase to recoup the lost refining margins.
• Increasing demand on gasoline will pressure an increase in the price of oil.
The bottom line is, before the summer is over the 20 cent gas tax holiday will end up in the pocket of Big Oil.
So before the Politician’s give "Big Oil" another tax break they might want to consider a refresher course in economics 101.
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