Spooked by the rising price of gasoline, the Obama administration has responded in its usual fashion: not by trying to solve the problem, but by looking for someone to demonize. We wrote last night about Obama’s attack on “speculators;” he has seen political advantage in going after America’s oil companies, too:
President Obama lashed out at oil companies — and the tax breaks they get from the government — for a second day in a row on Thursday and again in Saturday’s address.
“Four billion dollars of your money are going to these companies at a time when they’re making record profits and you’re paying near record prices at the pump,” the president said at a Nevada town hall. “It has to stop.” …
[B]y hitting the oil companies over subsidies and sending the Justice Department on an investigation, Obama can try to mend fences with his allies.
It is easy to show that Obama’s attack on the oil companies is baseless. To begin with, what do “subsidies” have to do with high gas prices? I assume that by “subsidies” Obama means that there is still some oil company income that the government doesn’t tax. But the effect of a tax break is to lower prices, not raise them. On the other hand, the government does raise the price of gasoline, very significantly, by levying massive taxes on gasoline at both the federal and state levels. In fact, the government profits much more from the money you pay at the pump than any American oil company does.
In order to refute Obama’s demagoguery, one need only turn to the administration’s own U.S. Energy Information Administration, which says:
EIA expects regular-grade gasoline retail prices, which averaged $2.76 per gallon last summer, will average $3.86 per gallon during the current driving season. …
Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by changes in crude oil prices and wholesale margins. …
Retail price projections reflect higher prices for the refiner acquisition cost of crude oil, expected to average $112.50 per barrel this summer compared with last summer’s average of $74.70 per barrel. EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the refiner acquisition cost of crude oil) to average 53 cents per gallon this summer compared to 36 cents per gallon last summer, largely brought about by continuing strength in world-wide liquid fuels consumption.
So the price increase since last year breaks down like this: one barrel of oil produces around 20 gallons of gasoline, so the increase in the price of crude oil from $74.70 per barrel to $112.50 per barrel corresponds to $1.89 per gallon. The increase in wholesale gasoline margins (which includes the oil refiner’s profit as well as the cost of refining) is only 17 cents per gallon. So Obama’s beating up on the oil companies is pointless.
Many people do not realize that the American oil companies are relatively minor producers on the international scene. Because of our restrictive drilling policies, they do not have access to substantial quantities of oil in the ground. They are major refiners, but relatively small producers of crude oil. The largest American oil company, Exxon-Mobil, barely registers in terms of control over supplies of crude oil. You have to hunt for it on this chart, which we wrote about here. Click to enlarge:
Similar data here. Exxon Mobil, America’s largest crude oil producer, is a net buyer, not seller, of crude oil. The American oil companies typically refine two to three times as much oil as they produce. So they have little or no impact on the global price of crude oil.
It is too bad that demagoguery isn’t a useful product. If it were, the Obama administration could add materially to our GDP.