News media are lying to you about the real price of gasoline. They should be showing you instead how refineries are price gouging.
Two charts tell the tale: see how much more gasoline cost in 2008 than today when comparing the real price of each? And how much closer the real prices of a gallon of gas are over time compared to the real prices of crude?
On 14 March 2022, crude oil was only 52% of the real price of a barrel of peak crude in July 2008. But gasoline at the pump? Gasoline was 80% of the real price of peak gas in July 2008.
Yet the headlines:
To accurately compare how prices change over time, it’s important to account for changes in cost of living between the two points in time.
Price fluctuations have been an economic phenomenon since ancient times. Escalating prices led Roman Emperor Diocletian to enact price controls in a.d. 301, but his “Edict on Maximum Prices” failed to restore financial order…
Economists experimented with index formulas for gauging the average price of various commodities in the 19th century, and the first official indexes measuring broad prices and their changes were developed by government agencies in the early 1900s as a means of settling wage disputes.
Nominal sums (unadjusted or current dollars) are point-in-time values. Real value is nominal value adjusted for inflation.
In effect, $20 will buy less retail output today than it did 20 years ago. But for data collectors, a $20 purchase gets added to total sales in the same manner today as it did 20 years ago, even though it represents a different quantity of goods. Separating out the price effect leaves researchers with a clearer picture of what’s really happening to sales levels relative to any time period. The object then becomes to remove any part of the variable’s change that is attributable to price movements, arriving at a real, or inflation adjusted, indicator.
In 1917, the BLS began collecting data on the cost of living; it published the first price indexes for select US cities in 1919. Economists disagree over which things should be included when calculating inflation adjustments but there is no argument that adjustments are essential.
The CPI Inflation Calculator makes it easy for anyone to convert nominal dollars to real ones. Remember this link the next time you see any news story comparing prices across time!
A very imperfect market
Petroleum refineries convert crude oil into gasoline, diesel and other products. The US has 126 refineries owned by 52 corporations. The top five (5) corporations — Marathon Petroleum, Valero Energy, Phillips 66, Exxon Mobil and Chevron–operate 49 refineries that account for about about three-fifths of US refining capacity.
This is an extremely concentrated economic sector. Ten corporations control 80% of US refining capacity, leaving 42 to manage 20%. Most are vertically integrated, owning-or-licensing gas stations while also drilling for oil.
Despite this extremely imperfect market, the federal government does not regulate prices. In January, the price of crude oil accounted for 56% of the price of a gallon of gas, according to the Department of Energy.
Refining adds another 14%.
Distribution and marketing relates to the retail side of the business. This is where market consolidation disappears.
More than 100,000 retail outlets sell gasoline; these range from convenience stores to gas stations to big box outlets (such as Costco, Kroger, Sam’ Club and Walmart).
The 2021 Convenience Store News Top 100 ranking put 7-Eleven, headquartered in Irving, Texas, at number one with 12,973 outlets.
The store names for 7-Eleven also include Speedway, Stripes, Tedeschi Food Shop and White Hen Pantry. Note that not all convenience stores sell gasoline; 7-Eleven reports more than 4,200 fuel convenience stores.
They partner with everyone on the top five refinery list (above) as well as a lot more brands.
Number two: Alimentation Couche-Tard Inc., headquartered in Quebec, Canada, had 5,833 U.S. stores operating under the name Circle K (acquired in 2003).
Number four: EG America, headquartered in Westborough, Massachusetts, had 1,698 stores and also operates under the names Cumberland Farms, Fastac, Kwik Shop, Loaf ‘N Jug, Minit Market, Quik Stop, Tom Thumb, and Turkey Hill. It is a subsidiary of the UK corporation, EG Group.
Number five: GPM Investments, a wholly-owned subsidiary of ARKO Corp., is headquartered in Richmond, Virginia. It has approximately 3,000 stores and operates under the names Admiral Petroleum, Apple Market, BreadBox, ExpressStop, E-Z Mart, Fas Mart, Jetz, Jiffi Stop, Jiffy Stop Food Marts, Li’l Cricket, Next Door Food Store, 1-Stop Food Stores, RStore, Roadrunner Markets, Scotchman, Shore Stop, Town Star, Village Pantry and Young’s.
That’s about 26,000 stores out of more than 140,000.
The number one “gasoline station” is Shell, according to ScrapeHero (and others). However, Exxon Mobil sold its Exxon and Mobil stations in 2008; the new owners, mostly convenience stores, licensed the brands. It’s not clear what this list really means.
According to the US Department of Energy, there is very little difference in gasoline at the pump:
Gasoline is sold at more than 100,000 retail outlets across the nation, and many are unbranded dealers that may sell gasoline produced by different companies. Branded stations may not necessarily sell gasoline produced by the companies that own the stations. Gasoline from different refineries is often combined for shipment through pipelines, and different companies that own service stations in the same area may purchase gasoline at the same bulk storage and distribution terminal.
The only difference between gasoline at one company’s fueling stations and gasoline sold by another company is the small amount of additives that some companies blend into the gasoline after it leaves the pipeline and before it gets to their fueling stations.
The challenge is decades old
In 1971, Rep. Morris K. Udall (D-AZ) wrote:
In 1965 the 20 largest oil companies in the United States had aggregate profits of nearly $6 billion. Taking advantage of special preferences in our tax laws, they paid income taxes representing only 6.3% of these profits — the same rate paid by a married taxpayer with two children earning just $4,900 — and 41.7% less than the rate paid by most U.S. corporations. Shocking examples like these reflect no dishonesty on the part of oil companies; they reflect a failure of Congress to face up to the glaring inequities in our income tax system.
In 2014, Mother Jones examined how the oil depletion allowance was still distorting markets and providing corporate welfare.
In 2016, a Council on Foreign Relations discussion paper noted that the three major tax breaks for oil cost us about $4 billion annually. (In February 2022 dollars, that’s about $4.7 billion.)
In a perfect world, markets this imperfect would be subject to price regulation. They aren’t. Instead, oil is a massive, global beneficiary of corporate welfare.
FYI: from a 42-gallon barrel of crude oil, US refineries produce an average of 19-20 gallons of gasoline; 11-13 gallons of distillate fuel (most is sold as diesel); and 3-5 gallons of jet fuel.
Nominal prices (Texas crude / AAA average unleaded)
- July 2008 – $147.27 / $4.144
- January 2022 – $88.94 / $3.41
- 07 March 2022 – $119.26
- 14 March 2022 – $99.76 / $4.32