JULIA ROBERTS GOAD
With summer driving underway, the price of a tank of gas is becoming a major issue in the budgets of Americans. It would seem that consumers have little choice; we pay the price at the pump. In an area with limited public transportation such as Mingo and Pike Counties, the price of gas is simply part of the cost of living.
Gas prices have receded statewide since peaking at about $3.97 in early April.
But gas prices are falling, making that summer vacation more affordable.
What’s behind the free-fall? It turns out we have something of an oil glut. Consumers around the world are buying less fuel while oil producers, including the U.S., have continued to pump oil.
A recent survey by Platts found oil production from OPEC nations rose 40,000 barrels per day to 31.75 million in May.
The highest since October 2008
The May production marks a rise from April’s output level of 31.71 million barrels a day and is the highest level since October 2008 when OPEC volumes averaged 32.26 million barrels.
The biggest single component of retail gasoline prices is the cost of the raw material used to produce the gasoline – crude oil. That price has been between $90 and $120 a barrel, depending on the type of crude oil purchased. With crude oil at these prices, a standard 42-gallon barrel translates to $2.15 to $2.85 a gallon at the pump. Excise taxes add another 50 cents a gallon on average nationwide. So the price for gasoline is already at $3.00 or more per gallon even before adding the cost of refining, transporting, and selling the gasoline at retail outlets. Taken together, crude oil costs and taxes account for more than 77 percent of what people are paying at the pump. That leaves 23 percent for the refiners, distributors, and retailers.
Gasoline taxes collected by states vary widely, from just 26.4 cents per gallon in Alaska, to as much as 68 cents per gallon in Connecticut. In addition to excise taxes, other taxes can also apply, such as sales taxes; gross receipts taxes; oil inspection fees; county and local taxes; underground storage tank fees; and other miscellaneous environmental fees depending on the state.
Joel Naroff, of Naroff Economic Advisers, says that the price of just about everything the U.S. imports, including cruide oil could get cheaper, or at least not go up in price.
“Import prices are falling as everyone around the world is trying to sell into the one market where there is some demand, the U.S.,” Naroff said, “That means they are willing to take lower prices to sustain their sales.”
As a result, he says oil prices are down, further declines in gasoline prices are coming and the U.S. economy is not growing strongly enough for any firm to have much pricing power. At the same time, the value of the U.S. dollar is rising, meaning things that are purchased in dollars - like oil - are getting cheaper.
That fact is underlined in the U.S. Labor Department’s Producer Price Index (PPI) for May, which took its biggest drop since 2009. The main factor in the decline? A 4.3 percent decline in the price of energy.
Will the trend last? Who knows? But for the rest of the summer, at least, consumers should enjoy falling prices at the pump.