Republicans and Gas Prices: Look in the Mirror

Reason Magazine ^ | April 26, 2006 | Samuel R. Staley, Ph.D.

[Coop]

I don't know what forum you read, but this "blame it all on the GOP" pretty much is lockstep on FR.

[Sam Gamgee]

OK, so gas prices have doubled from 2001 - going from $1.53 a gallon to just over $3.00 today. Oil prices have gone from $25 a barrel to $75 today. So my question is why are gas prices still so cheap?

[Gondring]

OK, so gas prices have doubled from 2001 - going from $1.53 a gallon to just over $3.00 today. Oil prices have gone from $25 a barrel to $75 today. So my question is why are gas prices still so cheap?

Check your math. Just because one component of the total price has increased, it doesn't mean the total price should increase by the same--just like a tripling of salt prices wouldn't make bread prices triple.

In your example, using the 2002 numbers that say 43% of the cost of a gallon of gas was from crude prices (with your example of $25/barrel), then $100 of gasoline would be $43 of crude costs and $57 of other. If the crude portion tripled, that amount would be $129 for crude...and the total cost would be $186 today. That is, a tripling (200% increase) of crude costs should raise the price of gasoline by 86%....and that $1.53 gallon of gas should be under $3.00 (since, for example, exploration costs aren't increasing as rapidly as the crude prices).

Note that there are many complexities in the system and simplifications in these calcs.... And I recognize that I have included "profits" in "other." :-)

[Sam Gamgee]

Good point. I was being a tad simplistic. What we can do is remove the only other real significant portion of the gas price - taxes. So if in 2001 the taxes were 40 cents, the real crude related gas price was $1.13. If it was to triple with oil we would get $3.39.

I understand what you are saying, but salt is tiny component of the cost of making bread, while oil is the major component of gas.