EDITOR'S NOTE -- Contributing columnist, Steve Nicklas, expresses his views and insights on various topics of local interest in STEVE'S MARKETPLACE. __________
Pulling into your local gas
station, you mutter under your breath as the neon sign above pronounces that
gas prices are nearing $4.00 a gallon.
You curse the oil companies and the gas stations and the various levels of government that all contribute to the price. They are all turkeys, you tell yourself. They are the culprits.
But in a moment of reason, you think about prices in other parts of the world. In many parts of Europe, a gallon of gas costs near $10. And in the country of Turkey itself, the price is a whopping $11 (equated to U.S. dollars).
For a moment, this makes you feel better, realizing the pain is being felt elsewhere. However, you receive the final bill on your gas purchase, and you feel worse again.
U.S. residents are hurting from the inflationary pressures of oil -- and how it infiltrates other parts of the economy. Electric bills have risen, because utility companies use oil to produce their product. It costs companies more to transports goods by rail, truck or ship, so they try to pass the costs on consumers.
Milk, bread and other staples are rising in price due to various factors driving up commodity prices. A vice-like grip keeps closing in on you, squeezing your budget, especially for those on fixed incomes. And little relief is in sight.
The price of a gallon of gasoline has complex underpinnings. There are many variables, such as your areas proximity to refineries, the competition among gas stations, and state taxes.
At the national average price of $3.80 for a gallon of regular unleaded gas, the breakdown is such: $2.80 is for the crude oil; 60 cents is for the refining of oil (to make gas) and for marketing and distribution costs; and 40 cents is from federal, state and local taxes.
Many drivers contend the gas stations themselves impact prices. Some add on a few cents, while others add as much as a dime or more per gallon. For instance, gas prices around Amelia Island and Yulee are often higher than neighboring locations, even as close as Jacksonville.
Gas prices at some bargain-basement stations in Jacksonville were $3.84 this past weekend. The prices were as much as 15 cents higher in St. Augustine, Ponte Vedra Beach, and in Yulee/Fernandina Beach. And prices in North Florida are usually higher than those in South Georgia, mostly because of state taxes.
Web sites have been created to shop gas prices. The GasBuddy.com site is one of the most prevalent, whereby drivers report prices at specific locations. The web site also shows prices around the U.S. In some parts of California, prices are near $5 per gallon, for instance.
The price of oil is also complex and fickle. There are the environmental pressures against nuclear energy and new drilling in sensitive areas within the U.S., while our country imports half of the oil it consumes. And alternative energy sources will take time to develop and have a meaningful impact.
This makes the U.S. almost defenseless against the whims of OPEC, or the Organization of Petroleum Exporting Countries. This consortium of 13 nations in the Middle East produces 40 percent of the world’s oil.
In other countries, some citizens never even apply for drivers licenses, due to the high price of gas. They use bikes, mopeds, public transportation, and carpools instead. However, with the emerging markets around the world feeling an explosion in wealth, many more of their residents can afford cars -- and therefore will drive. This, as other parts of the world try to reduce driving and the use of oil through such means as hybrid cars.
This will place even more cars on the global roadways. With most political remedies, the effect can be worse than the cause. New legislation to input ethanol in gas has driven up prices, because it costs refineries more to employ this method.
It is surprising to realize the U.S. is the world’s third-largest producer of oil. The biggest area of production is the Gulf of Mexico, in the Permian Basin reserve, while states such as Texas, Louisiana, and California also are big producers.
The gas and oil situation is bad here, but not as woeful as in countries such as Turkey. When prices become too high, the use of petroleum products declines, but prices do not always fall with it. Unfortunately, the price swings can turn your stomach, since they are difficult to understand -- and digest.
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(Steve Nicklas is a financial adviser who lives on Amelia Island. He can be reached at 904-753-0236 or at thenicklasteam2@msn.com.)