Why does gas cost so much

You may be surprised but a barrel of oil cost about the same all around the world, within a few dollars. When the cost goes up in the US for a barrel of oil, it goes up the same amount all over the world and it has zero to do with a US company. World Crude Oil Prices.

Now the cost of gas at the pump varies widely around the world, and there are really only two main reasons for that, taxes and subsidies.

TAXES: Take the US as the base line and you find we pay 19% of the price of gas in taxes, but in Europe the tax on gas is around 70%. Remember both Europe and the US pay about the same for a barrel of oil, but at the pump the price difference is massive. And it doesn’t matter if the oil is pumped from the North Sea or the Gulf of Mexico; cost at the well head is much lower than value in a barrel.

SUBSIDIES: Many oil producing Middle Eastern countries and other OPEC producing countries subsidize their oil. Even though the value of the oil is worth $100/barrel for example, oil rich countries sell their oil to their population at a much reduced rate ~ pennies on the dollar. There’s a very good reason why some countries can afford to reduce the cost of oil (or gas) to their populations.

The cost of oil is not set by the countries that produce the oil and it is not set by the US Oil companies (as much as you would like to think). The cost of a barrel of oil is set by three major international petroleum exchanges , [NYMEX, IPE, SIMEX]. So if it still cost $20 to produce a barrel of oil from the well, its then worth $100 [per NYMEX] once it gets placed into a 50 gallon barrel for sell. So if you happen to be a major oil producer and the oil companies are nationalized [run by the country], why not keep the cost down in your own country, as you still make 80% profit for any oil sold abroad.

The US did this as well back in the 80’s after the 1973 oil embargo, as they fixed the price that US drilled oil could sell for even as the world price was going up. Yes the Oil companies subsidized to cost of your oil for a decade.

Let’s review with some made up numbers;

The cost to drill oil in Texas is $20/barrel for example, $30 in the Alaska, $40 in the North Sea, or $10/barrel in Qatar. Numbers are fabricated to illustrate the cost of drilling in different environments. The value of oil is $100/barrel per SIMEX. So no matter the location of the drilled oil the petroleum company makes a good profit [for now]. The oil companies are not setting the price, and although OPEC did set the prices in the seventies they only set production rates now.

OPEC is divided into two camps, one camp would like the price kept high while the other would like a lower cost for oil [but neither set the price]. The countries that would like the higher price now need the revenue and have limited resources in the ground. The countries that want the price kept low have massive resources of oil and do not want the value of their oil in the ground to decrease. The US and other countries using E85 and switching to Hybrid cars would decimate the long term value of their oil reserves as consumption decreased over time.

One comment I heard the other day was that we could boycott a particular gas company and that would force the price of oil down. Unfortanitly that would only serve to put a few gas stations out of business. The oil companies could just sell their oil on the open market and run more imported oil through their refinery, so in the end the you boycott oil from Ecuador with out really knowing it.

Really want cheaper gas prices at the pump, stop driving and reduce consumption.