Steppin' on the Gas

Let's start with my conclusion: I sure wish I had stocks that went up as fast as gas prices have this year. Now, that's not an original thought. Nor was it the conclusion I expected for this piece. After writing about consumer and business issues for the past 30 years, I thought I could do a well-researched piece proving how the oil companies are screwing us, as shown by their persistent windfall profits... by the war in Iraq ... and by Dick Cheney's "secret meeting" with oil company execs at the dawn of the Bush presidency. It should have been easy. George Tenet himself told me it was going to be "a slam dunk."

Last week, I found four gas stations on Route 17 that still charged just $2.99 for a gallon of premium - a miracle! See, I'm the cheapest guy there is, when it comes to filling my gas tank. Thirty years ago, driving cross-country in a '73 Honda Civic, I nearly ran its little tank dry a dozen times, because I'd crisscross back roads for miles and miles to avoid paying 70 cents/gallon for gas selling along the Interstate. That was a very stressful trip, as you can imagine. But here's a secret: Since 1977, gas prices have climbed fivefold. My income, since then, has risen six- or sevenfold, so it should feel less painful for me to fill the tank now then it was then. Do you feel the same way?

At the end of January, the average retail price for a gallon of regular was $2.17. By early May, gas prices averaged $3.05. That's up 88 cents -- about 41 percent -- in three months, or about 164 percent/year. Nothing in my portfolio now has returns like that. Well, there was that one stock, Krispy Kreme ...

In that same period, the price of a barrel of crude oil rose just 26 percent. So that other 15 percent, that's the gouging, right? I wish it were that easy. The Dept. of Energy says crude oil costs represent only about 59 percent of the cost of gas. Another 10 percent (or up to 22 percent, depending on where you live - California, you're so screwed!) is from refining costs ... 20 percent from federal and state taxes (also depending on where you live)... and about 11 percent for distribution and marketing costs.

But today's gasoline was extracted and refined months ago, when prices were lower. Today's crude prices are for oil that's still months away from your gas station. So, the daily rise and fall of pump prices, seemingly in concert with crude oil prices -- only with bigger swings -- is that the gouging? Perhaps.

America's supply of imported crude oil -- 60 percent of what we use -- is very fragile. Our biggest foreign source is Canada, but most of the other nations we import from either don't like us much, or have lots of internal problems -- or both -- so predicting our future supply stability is "iffy." Our refining capacity is fragile, too. Hurricane Katrina showed us that in 2005, when it knocked out an alarming fraction of our domestic oil supplies and our national refining capacity - and gas prices soared. Since those refineries finally came back on-line, they've been running full-tilt. This spring, when they had to shut down for the annual maintenance they'd apparently skipped last year, we were reminded once more that there's no slack in our refining capacity. Aha! It's the refining companies' fault. Why weren't those bastards using their windfall profits of the last two years to expand refining capacity? Isn't this where they're sticking it to us?

Well, yes, but: It's just supply and demand. When prices were low, there was no incentive to expand capacity and sell more gas. Once prices came back up, more gasoline could be fed into the system to be sold at the higher price. But -- oops! -- many refineries were shut down for maintenance, or switching over to summer blend output ... and another refinery, in Texas, had been down for months due to a fire. So, gas inventories were 94 million barrels two weeks ago, vs. 205 million in that same week in 2006 (when several Gulf refineries were still offline!), and 215 million in 2005. Lower inventories equals higher prices.

Someone recently accused big oil of using windfall profits to buy back their own stock - instead of building new refineries or exploring for more oil. But investors usually like their companies to buy back stock - it makes their shares more valuable. And a lot of huge pension funds hold huge positions in oil company stocks. Jeez! Favoring your shareholders over the national interest? Almost makes one understand why Hugo Chavez recently nationalized Venezuela's oil industry.

Are we seeing the breakpoint yet? $3.50 a gallon? $4.00? In California and New York, those price barriers fell weeks ago, and still we buy. Maybe we will buy gas at any price because we have to... or because many buyers are too young to remember how cheap gas used to be... or because, relative to other commodities, gas is still a bargain. Last month, the price of a gallon of milk in New York soared, from $2.89 to $3.99. Regular milk, not premium.

Twenty years of Federal Trade Commission investigations have found no evidence of oil-company wrongdoing. Congressional hearings, always a threat when presidential elections are due, don't turn up anything, either. Democratic presidential hopeful Dennis Kucinich loudly called for taxes on oil company windfall profits -- up until last Election Day. Strangely, his calls faded when the new majority took over in Congress. Meaning, don't count on our government to control gasoline prices -- last time they tried, it was a disaster, anyway.

I can't say oil companies aren't pulling something. They might be. And, our elected officials may well be fully in thrall to the oil companies ... that would explain a lot! I can say these things are tough to prove. Fact is, oil companies won't change their business practices unless we decide to regulate them - as we do broadcasters, utilities, and other entities that we determine hold a "public trust." But maybe, we'd be better served by not pointing fingers at them, and by not living in denial about our oil addiction. We could do worse than accept the fact that conservation and technical innovation will do more for us than all the hearings and investigations put together. Yeah, right. In the meantime, I sure wish I had stocks that went up as fast as gasoline prices have this year.

For a remarkably clear picture of how conservation, use or extension of existing technology, outside-the-box innovation, and getting industry to "buy in" because they'll make money doing so (I'm oversimplifying here), can end our dependence not just on imported oil, but any oil, I recommend Winning the Oil End Game, by Amory Lovins and the Rocky Mountain Institute. www.rmi.org