Judith Proveaux Wilson
Athens State University
Financial Management 350
Congress has restricted the building of oil refineries and the drilling of oil in Alaska and offshore
for over fifteen years. These restrictions have reduced the supply of domestic oil. The
government now blames the major oil companies for the high gasoline prices. The government
collects substantially more in taxes from the sale of gasoline than oil companies make from
refining oil and distributing gasoline. The major U.S. oil companies pay approximately forty
percent of their earnings in taxes. The major U.S. oil companies also pay as much in taxes as the
bottom fifty percent of the tax payers. Is it ethical for politicians to blame high gasoline prices
on the oil companies?
Everyone looks for someone to blame when gasoline prices rise. Refining oil makes up
more than two-thirds what it cost to buy a gallon of gas. Investors can affect oil prices by buying
contracts to protect themselves from price inflation or just to trade them for profit. Gasoline
prices also spike when hurricanes or fires or other natural destruction hits the refineries. When
consumers see the numbers at the gas pumps begin to rise, a panic sets in. People start pointing
fingers at the oil companies, the government and even the gas companies. The president also
becomes a target of the blame.
The price of crude oil, used to make gasoline determines the price of gasoline. Oil is a
global commodity, traded on exchanges all around the world. Oil prices have been high for a
long time but drop at times. When an oil producer sells to a refiner, they usually agree to a set
price on an exchange. After the oil is refined into gas, it’s sold by the refiner to a distributor.
Lastly, gas station owners can set their own prices based on how much they paid for their last
shipment along with how much their competitor charges. Gas stations do not make a lot of
profits from gasoline sales. They drop prices to a cent below their competitor to lure customers
to make other purchases. Oil companies and refiners must accept the price the market settles on.
When oil prices are high, oil companies make more money but are not able to force the price of
oil up.
Politicians cannot do much to affect gasoline prices. Allowing increased drilling in the
United States would contribute only small amounts of oil to world supply which is not enough to
affect the price. When oil reserves are released it sends yet another panic throughout the society
making them believe there is less oil available than there really is. Any price relief, from the
reserves, would be a temporary fix. Politicians can help reduce the total amount customers pay
when they buy gasoline. They could lower gasoline taxes and mandate fuel economy
improvements or subsidizing the cost of alternative-fueled cars and trucks. Political attention has
resulted in several government studies such as the Federal Trade Commission and the
Government Accountability Office.
Most people think that high gasoline prices will increase oil company profits but the integrate
oil companies are lower during extremely high gas and oil prices. The margins of these firms are
lower during periods of very high gasoline prices than when they are very low. Profits are
highest during moderate gasoline prices. One of the main problems is not the price of gas as
much as it is the vulnerability to supply disruptions. More Americans drive more, daily, than in
other countries and have heavier cars with longer distances.
The oil and gas reserves that are closed to production are onshore and offshore. Nearly sixty
