Word: costs
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Dates: during 1970-1979
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People accept and admire the technical expertise of oilmen; it is the business side of the industry that they suspect. They fail to understand why prices keep going up, especially when the announcement of an OPEC production cutback or an increase in the cost of oil that is a month or more away by sea from the U.S. seems almost immediately to send the price of gasoline leaping at the pump...
There are, in fact, convincing reasons, some of them highly technical. Gasoline prices are federally controlled, but ceilings vary from station to station, some right across the street from each other, because their expenses vary. The price control formula permits dealers to offset the cost of gasoline, the rent on their gas stations, the wages of their employees and other overhead expenses, and still earn a profit. For competitive reasons, dealers normally sell at somewhat less than their maximum allowable prices; drivers shop around for the best prices when supplies are ample. But when a small surplus of oil turns...
...worst offender is the so-called entitlements program. It was set up under Gerald Ford in 1974 to equalize the burdens of surging import prices between refineries that depend on expensive foreign oil and those with supplies of low-cost domestic petroleum. The complex program works this way: for every barrel of domestic crude that a refinery processes, the company must make a payment into an entitlement pool. The payment raises the price of each barrel of domestic oil halfway up to the cost of more expensive OPEC crude. At the same time, any refinery that imports costlier OPEC crude...
...source, OPEC oil is cheaper than dirt. The cost of drilling, pumping and moving it from the Saudi Arabian deserts to Persian Gulf ports, for example, is about 30? per bbl. That is less than 1? per gal, since there are 42 gal. in one barrel. But by the time the crude is shipped, refined and sold as gasoline to U.S. motorists, the price rises more than...
...first and biggest boost is made by the Saudi government. Its royalties, fees and taxes bring the price per barrel up to the cartel rate of $14.55, or 35? per gal. Shipping adds about $1.25 per bbl., or 3? per gal. But the actual cost of the journey is perhaps no more than a few cents a barrel. The difference is the profit for the tanker operators to help cover the expenses of maintaining huge, often idle fleets and sending empty tankers back to the Middle East...