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Tuesday, March 11, 2008

Back to the basics: "A Primer on Oil Prices"

Pretty good primer, too, at A Primer on Oil Prices:
Wonder why gasoline costs more? In order to fulfill various air pollution reduction plans, gasoline and diesel must be refined into some 17 different formulations. With three grades of gasoline, that means that refiners must produce some 45 separate blends. That’s expensive and the cost is, of course, passed along to consumers. Since demand outstrips production capacity, weekly gasoline imports more than doubled between 1992 and 2004.

The mandate to include the gasoline additive, ethanol, largely made from an ever-increasing amount of the nation’s corn production, further adds to pain at the pump. The irony here is that it drives up the cost of food while reducing the mileage available from a gallon of gasoline with this additive. As a result, oil refiners have cancelled an estimated 40 percent of planned expansions, reducing potential new output from 1.6 million barrels per day to less than 1 million barrels daily.

The hard math of a growing U.S. population, plus the fact that petroleum accounts for about 40 percent of U.S. energy supply, two thirds of which must be imported, means that Americans are caught in a government designed energy vice. American transportation runs on oil. It accounts for about 28 percent of U.S. energy use.

As America’s infrastructure of roads and bridges ages, a two-year study by the National Surface Transportation Policy and Revenue Study Commission recently urged Congress to raise the tax on gasoline by as much as 40 cents more per gallon.

At the same time, the latest energy bill has increased Corporate Average Fuel Economy (CAFE) standards to require vehicles to get 35 miles per gallon by the year 2020. Analysts project an increase in the cost of buying a new car between $900 and $10,000 depending on which expert is consulted. The only way to achieve this is to drastically reduce the weight of a car, thus increasing the potential for a lethal accident and more dead Americans on the highway.
Make sure you send a "thank you" note to your elected representatives. You might also mention that you really appreciate the increase in food prices caused by the ethanol mandate.

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