The Truth About Gas

William Sargant
by William Sargant
the truth about gas

Fellow enthusiasts and SUV salesmen fear not: gasoline will be cheap again within a year or two. The price will return to the $1.00 – $1.50 range, just like it was back in December of ‘02. How could this be? Start with this: if high gas prices were solely and inexorably linked to the price of oil, why are there still enough cheap plastic toys to keep your local Dollar Store in business? Why have disposable diapers, polyester pillows, Tupperware, hula hoops, toy dump trucks and other petroleum-based products not jumped to three times the price, too? Because they’re not subject to the same political and economic pressures affecting gasoline.

When voters elect the latest gladhander to their municipal and state governments, the chemical makeup of the gas down at their local pump is not usually high on their list of priorities. BUT if you’re an agricultural activist who wants to sell corn to the government to produce Ethanol, or an environmentalist who believes you possess the magic formula for reducing baby-killing smog in western cities, well, that’s a different story. These groups are extremely effective at lobbying government at the state and local level to create a "boutique" gasoline formula to further their cause. As a result, Missouri gas isn’t good enough to burn in California, whose gas cannot legally be sold in New York City or parts of Arizona.

According to Michael Ports of the Society of Independent Gasoline Marketers of Americas, "Twenty years ago, there were two blends of gasoline offered in three octane levels, and essentially one blend of diesel fuel. Today, there are more than 18 unique blends of gasoline mandated across the nation — again offered in three octane grades — and at least three different blends of diesel fuel." Okay, let’s do the math. I make it… 59 different blends of gasoline spread out over 50 states. Just to make things that much more complicated, no one refinery produces all 59 blends of gas; nor is any refinery typically dedicated to any one grade.

OK, let's say a particular blend of gas for the Atlanta area is made in, oh, Louisiana and Mississippi. And let’s further imagine that a Category 4ish storm named something like Katrina pounds through the area, heavily damaging the refineries, destroying their ability to blend Atlantagas. So, all Atlanta has to do is call up Florida and ask for some Orlandogas, right? Well, no. Turns out the closest supplier of that particular formula of gas might be somewhere like… Europe. Until some big boats brimming with Atlanta-friendly gas cross the pond, load up a few thousand tank trucks and deliver the requisite blend, the local population is forced by legislative fiat to ponder pump prices hovering around $5.57 a gallon.

What’s more, all three octane levels of Atlantagas are all likely to have unique chemical constituents that the other 56 official blends do not. Those ingredients must be transported to the refinery. Some of them, such as Ethanol, may have special production and handling requirements, which adds time, effort and, of course, money to the equation. By the time a new refinery is ready to make Atlantagas somewhere else in the country, the original refineries may start trickling back on-line. The producer must weigh the simple advantages of riding out the storm. If they’re really unlucky, another storm (call it Rita) could be heading towards the new refining location.

Speculation is another factor adding to the recent gas price fluctuations. Back when gas was $2.00 a gallon, industry experts speculated that speculation was adding five to seven cents to a gallon of gas. In the wake of hurricanes, the “investor effect” has been both more volatile and more pronounced. Basically, some heavily moneyed folks are betting against The Truth About Oil; they’re making a short-term gamble that the price of oil will keep going up. Because this strategy has been successful in recent years, more commodities investors are doing it, which inflates the demand (and price) of oil (and gas).

These factors blend together (so to speak) to create a sub-economy so complex it takes a Congressional inquiry or four to prove that "big oil" is not guilty of price gouging. Although scoring political points seems to be our elected officials’ official business, Congress would be better advised to simplify the regulatory chaos surrounding US gas production and distribution. I'm all for clean air, but there is no way that 59 different formulas of gas are necessary to accomplish this laudable goal. Picking a winning formula, even if it is more expensive to begin with, would help prevent supply and distribution problems. During times of crisis, the ability to borrow a cup of premium unleaded from your neighbor would be a strong force against severe price fluctuations, speculation and gouging.

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  • on Feb 12, 2009

    [...] throughout the country. This is a great article on the subject that I'm sure you would like. The Truth About Gas | The Truth About Cars [...]

  • Tassos I also want one of the idiots who support the ban to explain to me how it will work.Suppose sometime (2035 or later) you cannot buy a new ICE vehicle in the UK.Q1: Will this lead to a ICE fleet resembling that of CUBA, with 100 year old '56 Chevys eventually? (in that case, just calculate the horrible extra pollution due to keeping 100 year old cars on the road)Q2: Will people be able to buy PARTS for their old cars FOREVER?Q3: Will people be allowed to jump across the Channel and buy a nice ICE in France, Germany (who makes the best cars anyway), or any place else that still sells them, and then use it in the UK?
  • Tassos Bans are ridiculous and undemocratic and smell of Middle Ages and the Inquisition. Even 2035 is hardly any better than 2030.The ALMIGHTY CONSUMER should decide, not... CARB, preferably WITHOUT the Government messing with the playing field.And if the usual clueless idiots read this and offer the tired "But Government subsidizes the oil industry too", will they EVER learn that those MINISCULE (compared to the TRILLIONS of $ size of this industry) subsidies were designed to help the SMALL Oil producers defend themselves against the "Big Oil" multinationals. Ask ANY major Oil co CEO and he will gladly tell you that you can take those tiny subsidies and shove them.
  • Dusterdude The suppliers can ask for concessions, but I wouldn’t hold my breath . With the UAW they are ultimately bound to negotiate with them. However, with suppliers , they could always find another supplier ( which in some cases would be difficult, but not impossible)
  • AMcA Phoenix. Awful. The roads are huge and wide, with dedicated lanes for turning, always. Requires no attention to what you're doing. The roads are idiot proofed, so all the idiots drive - they have no choice, because everything is so spread out.
  • Leonard Ostrander Pet peeve: Drivers who swerve to the left to make a right turn and vice versa. They take up as much space as possible for as long as possible as though they're driving trailer trucks or school busses. It's a Kia people, not a Kenworth! Oh, and use your turn signals if you ever figure out where you're going.