“Victory has many fathers, but defeat is an orphan.” Although often attributed to John F. Kennedy, this line originated in the diary of Count Galeazzo Ciano, the Italian dictator Benito Mussolini’s foreign minister/son-in-law. He was shot by a German firing squad on January 1, 1944, after a failed coup against “Il Duce.” William Shirer, Kennedy’s friend, used the diary as source material for his masterwork “The Rise and Fall of the Third Reich.”
These days Covid-19 could be subjected to a paternity test of almost every bad thing that happens. That’s certainly the case with wobbly fuel prices. The pandemic catches the blame for a shortage of fuel delivery drivers, demanding higher wages, ergo—higher prices—at least that’s the Covid line used this month.
The Federal Reserve is telling us the inflation racing through our wallets will be as temporary as last year’s toilet-paper shortage. While that remains unknown, inflation has little to do with the outrageous motor fuel price in California.
So if it’s not Covid or inflation at the root of the $5.00 a gallon gas, what is?
The biggest reason is California’s insistence on slowing or stopping oil production within the state, even though our proven reserves are more extensive than Saudi Arabia’s. This misguided effort led to a dependency on foreign suppliers, which increased imported crude oil from foreign countries from 5 percent in 1992 to 58 percent today. World commodity markets set oil prices and fall into two main futures baskets—West Texas Intermediate (North American produced crude) and Brent (two-thirds of the other oil producers). The differential between the two can range $10 or more for a 42- gallon barrel of crude oil. We are paying the higher Brent Oil price on more than half our fuel rather than the WTI.
California Air Resources Board’s environmental fees stemming from the “cap and trade” program and the ever-evolving “low carbon fuel standard” add 25 to 50 cents per gallon to fuel price. The “special blend” winter and summer fuels are more costly, including the change-over production expenses.
Crude oil prices shot up when the Biden Administration released its plan to eliminate petroleum-powered vehicles at the beginning of the year. California’s Energy Commission reported a barrel of crude went from less than $50 at the start of the year to around $65 at May 1.
Oh, did we mention taxes? The federal gas tax, which has not gone up since 1993, is 18.4-cents per gallon. The tax burden per gallon in California is roughly 60- cents per gallon at the state level, plus another 8-cents sales tax shared by the state and local governments. Drum roll, please….86.4-cents per gallon…. badaboom clang.
Finally, the mystery costs
The enviros, liberal politicians and other general mischief makers always talk about a mysterious 25-30-cents per gallon cost in fuel. They say the oil companies are sneaking it in, but are they? Let’s take a look at the mystery from the ground up. First, there is no mystery about the high cost of real estate in the Golden State. Gas stations typically occupy prominent corners of major streets and highways. Those spots demand a premium for land either by purchase or lease. They operate exclusively on electricity in the state that has the highest power costs in the country. Wage costs are going up every year in California by state mandate. Environmental regulations from the underground storage tanks to the fuel pumps add to the overhead expense whether owned by an oil company or the vanishing mom-and-pop operators.
No mystery, except why would anybody want to go into such an unprofitable business. It’s almost as bad as construction.
By Bill Davis, Industry Advancement Advocate – [email protected]