Greg Parker: The reasons for high gas prices and the slim profit margin for retailers

Greg Parker, CEO of The Parker Companies, in Sunday’s Savannah Morning News:

Retail fuels prices are ultimately determined by four related expenditures: crude oil costs, taxes, refining costs and distribution/marketing. By far, crude oil prices have the biggest effect over retail prices. The Department of Energy’s latest statistics put the cost of crude oil at 76 percent of the cost of gasoline. Taxes take another big bite: 12 percent.

The process of refining crude oil into fuel is another six percent of the cost of a gallon of gas. The remaining six percent includes everything post-refinery — the cost of pipelines, storage terminals, delivery trucks and all expenses involved in selling the fuel, plus any retailer profit.

[…]The current situation with Iran has already raised the price of crude oil as much as 20 percent. Global demand also has affected prices. While demand is down here in the United States, it’s up in the rest of the world, particularly in China and India, and that has kept oil prices high.

Speculators also play a role. Wall Street firms are playing the “over” in the betting game of predicting prices and they make huge amounts of money if they are correct. Naturally, that gives them an incentive to boost prices.

Then there are the credit card companies, who make 8 to 10 cents for every gallon of gas sold.

The Parker’s Pump Pal debit card is a way to short circuit those credit card fees.

Looking at the following from GasBuddy, it’s pretty easy to see the general correlation — with a lot of noise — between crude prices and pump prices:

Savannah Historical Gas Price Charts Provided by

Yes, Americans seem deeply concerned about gas prices, but consumer spending has still been improving, and economist James Hamilton at Econbrowser has argued — with evidence behind him — that “an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high.”

Prices are still below their 2008 peak.

How will all this play out in the election this fall? High gas price certainly aren’t good for Obama, but he has no more control over current fluctuations in pump prices than Bush had in 2008 when prices spiked.

From the Washington Post’s Voters blame president for gas prices, experts say not so fast:

Today’s oil prices are the product of years and decades of exploration, automobile design and ingrained consumer habits combined with political events in places such as Sudan and Libya, anxiety about possible conflict with Iran, and the energy aftershocks of last year’s earthquake in Japan.

“This notion that a politician can wave a magic wand and impact the 90-million-barrel-a-day global oil market is preposterous,” said Paul Bledsoe, strategic adviser to the Bipartisan Policy Center and a former Clinton administration official.

Oil is sold on a world market; it’s not like we could keep our own oil just for sale here in the U.S. The price is affected by world events and world demand. If the U.S. were engaged in an aggressive campaign to drill all the oil we could, we could add marginally to the world supply and perhaps marginally affect prices. And then OPEC or other international bodies might counter to limit supply and push prices back up.