Tuesday, May 13, 2008

Congress is Full of Crude

With the Senate passage of a halt of contributions to our Strategic Petroleum Reserve, those in Congress somehow believe that 70,000 barrels a day in the market is going to make a difference at the pump. Sadly, this is just an Election year gimmick.

Even though folks like our Representative Scott Garrett champion the idea, it will make even less of a difference at the pump than suspending the 18.4 cent gas tax. The US burns through 20,687,000 barrels/day, making the 70,000 barrels equal to 0.33% of our daily usage.

The retail price of gasoline today is $3.722. Of that money 72%, or $2.680 is attributable to the price of crude oil. In a stagnant market, the increase in supply would lead to an equal decrease in price. So, in theory, the $2.680 would decrease to $2.671.

Your savings on a 16 gallon fill up: 14.5 cents.

That's not per gallon, that's total. Less than a penny a gallon.

If Congress is interested in a real solution, and not one worth less than half a postage stamp, they need to find a way to deal with speculation. It's widely quoted that speculation is adding 25-30% to the price of a barrel of oil.

The first place to look is how oil futures are taxed. The folks over at About.com explain it better than I could, but basically, the current tax code encourages speculation on oil. Unlike stocks that you have to hold onto for a year for favorable taxation, 60% of the profit an individual makes on commodities is taxed at 15%, even if they only held the futures for a few minutes.

While it would be impossible to completely eliminate speculation, if the 30% price increase due to speculation was eliminated, on that 16 gallon fill up, we'd be saving about $12.86.

Just something to think about.

No comments: