America is up in arms and they are tired of excuses! No, I am not talking about the Obama administration but I could be. I am talking about high gasoline prices. Never does a subject inspire so much passion and yes even anger, but the truth is the average person has little idea of what drives gasoline prices. This subject is a particular sore spot right now as motorists are on pace to spend $491 billion for gasoline this year, the most ever. This comes at a time when gasoline demand continues to fall. According to MasterCard Spending Pulse report demand fell 2.4 percent last week to the lowest level since February. Bloomberg News says that gasoline demand was running 2.7 percent below a year ago and that was 25th week in a row that demand fell on that basis.
So demand is lower! Crude oil prices have fallen, then why haven't we seen sustainable drop in pump prices? Well the reasons are varied. The first reason is Quantitative Easing. QE has weakened the dollar and kept crude prices higher and it has also led to a demand surge in the emerging market place. Money seeking yield invests and so the US has become an exporter of gasoline which has kept our prices high. In other words, while our demand is falling it is spiking in other parts of the world. The US is not the only game in town when it comes to gasoline consumption and we are starting to see that impact at the pump.
The other reason is the high price of Brent Crude. While WTI, or West Texas Intermediate, has been weak due to weak demand and a backlog in Cushing, Oklahoma, Brent crude has stayed stubbornly above $100 a barrel. That strong price, due in part to falling North Sea production, has kept gas prices high. Because gas is becoming more of a market influenced by demand in other parts of the globe we are feeling the impact of the Brent crude price.
The Brent crude has also been kept high by the Arab spring, especially the war in Libya. European refiners looked to Libya as a replacement for North Sea crude. When that oil was lost European refiners scrambled to replace it and had a hard time doing so. This led to a drop in production, tightening the supplies of gasoline and lower US imports. This kept prices high.
You also had the economic turmoil in Europe come in to play. Earlier in the year strikes at some European refiners tightened supply and got us off on the wrong foot.
Weather also gave us a run of bad luck. Hurricane Irene's closed refineries in the East and shut down New York Harbor, our nation's largest gas import terminal. Then right after that we had Tropical Storm Lee that invaded the South and shut down refineries and oil and gas production. The API reported just yesterday that those storms had a major impact on crude supply. Earlier in the year there were floods in the Mississippi. That slowed production in the beginning of the US refining season. There was also a string of refinery outages across the country at critical times throughout this summer driving season.
The API reported that crude oil inventories fell by 5.05 million barrels, a number that will impact gas prices. While they said that gas supply rose by 2.76 million barrels due to weak demand, according to the Energy Information Agency 68% of what you pay for a gallon of gas is the cost of the crude. Refiners only get about 15%. The rest of the costs are made up of distribution and marketing and of course taxes. And 11% of what you pay is taxes and even more if you live in a place like Chicago, Illinois where taxes can be closer to 20% or higher. No wonder we often have the highest gas prices in the country.
So if you are tired of the excuses and high gas prices, the good news is that maybe you don't live in Chicago but if you do, I feel your pain.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.