Why is the cost of fuel so high?


By Bruce Shultz - For the Sidney Daily News



Around the globe, people are feeling the pain of inflation, currently at a 40-year high. The main contributor is gas and diesel prices. In today’s global economy goods are moved across America, as well the world. The price rise in fuel has led to a spike in the cost of everything we produce and buy.

Factors leading to this economic hardship include recovering economies from COVID-19 shutdown(s), because of pandemic restrictions. For nearly two years, air travel was significantly lower. Canadian CTV News reported in May of 2020, more than 17,000 airplanes were parked indefinitely worldwide. Many people were either working from home or not working at all. Of course, the lack of commuter traffic lowered oil demand even further.

This reduction in fuel consumption caused big oil companies to change their operational philosophy. They decided to no longer prioritize repairing refineries, and in some cases shut them down indefinitely. Now, let’s take a look at big oil pre-pandemic, in June 2019. A Sunoco refinery outside of Philadelphia, Pennsylvania caught fire. This was the oldest continually running refinery in the U.S., and it was subsequently shut down and the property was sold. It erased 175,000 barrels per day from the production equation. In 2021, Hurricane Ida also contributed to the closing of several refineries in the Gulf Coast area. Phillips 66 decided to shut down its Belle Chasse, Louisiana facility and not replace the lost production of 255,000 barrels per day.

In the past two years, there have been eight other refineries shut down totaling about one million barrels per day. Yet what we hear from big oil companies is that they are producing as much as they can. They seem to be engaging in what many of us believe was happening all along, collusion. This time it is not just the price, but cutting production that keeps prices soaring at the pump.

Analysts report oil entities are making record profits. Why would they want to change the system? Those same companies insist they lost billions during the pandemic, and are simply trying to recoup their losses. However, I own some oil stocks in my IRA. During the pandemic, I still was paid quarterly dividends. If they were losing money, where did all this cash come from that was being paid to shareholders? Apparently from the cash they had banked in accounts from past profits.

In January 2021, the price of a barrel of oil was about $52. Gas per gallon as a national average was $2.39. Federal taxes accounted for 18.4 cents per gallon and the average of four midwestern states accounts for 26.1 cents per gallon of state tax.

When you subtract 44.5 cents per gallon of taxes, $1.94 per gallon remains. On June 30, 2022, a barrel of crude oil was $106. AAA reports an average June 28 gasoline pump price of $4.86. Subtract the taxes and you end up with $4.41 per gallon. Big oil companies did not see all their inputs double, including wages for refinery workers. I don’t begrudge anyone for making a profit, which every successful business must do. However, it seems to me that profits should not be made at the expense of society.

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By Bruce Shultz

For the Sidney Daily News

The writer is the vice president of the National Farmers Organization. He is a cow/calf rancher in Montana.

The writer is the vice president of the National Farmers Organization. He is a cow/calf rancher in Montana.