OPEC unrest: Who makes the most money from higher gasoline prices? | International | NewJerseyNewsroom.com -- Your State. Your News.


Jul 05th
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OPEC unrest: Who makes the most money from higher gasoline prices?

nersesianroy032111_optBY ROY NERSESIAN

Let’s start from the lowest and work to the highest. The low end is marked by the big, nasty, greedy oil companies who earn all of 10 cents per gallon net of taxes. Yes, the greedy oil companies do pay many billions in taxes, but also receive a relatively few billion in subsidies. How can we justify paying subsidies to oil companies who are among the richest companies in the world? We can’t; no more than we can justify paying farm subsidies when crop prices are at their highest levels in history and where most of the money goes to large corporate holders of farm land. It’s time to make a clean sweep of taxpayer subsidies to corporate entities. But subsidies will never go away – as mentioned in previous articles, the largesse of tens of billions of taxpayer money to corporate and private entities is the quid pro quo for the tens of millions of campaign funds that must be collected by Congressmen to get themselves reelected.

The next in line is state taxes. New Jersey is a low-tax state as far as gasoline taxes are concerned at 10 cents per gallon. Other states are much more aggressive such as Connecticut and New York that tax about 25 cents per gallon plus a 4-5% sales tax. California has a gasoline tax of 18 cents per gallon plus a 6% sales tax – which on $4 per gallon gas brings the total to over 40 cents per gallon.

The next in line is the Federal government that charges a highway tax of about 50 cents per gallon, then our OPEC friends who receive about $2.50 per gallon. Of course this is not profit, but netting out production costs for these nations where oil flows like water, profit may be $2 per gallon or more. Let’s put this in graphic form so that we can respond knowledgably the next time some hack politician tells us that we ought to go after oil companies’ unconscionable profits for our having to pay high gasoline prices.


The difference between what we pay and what the above receives covers the cost of exploration, development of oil fields, transport, refining and marketing. This is done primarily by the oil companies. From any perspective, we get a lot for the 10 cents per gallon that the oil companies make. I’m not too sure about the others who have their fingers in the till.

OPEC is now meeting to determine the future price of gasoline. The first thing to remember is that OPEC does the same thing that oil companies did to control price. Way back in 1928, the oil company big shots met in a Scottish castle and more or less divided the world up among themselves as a means of propping up the price of oil. In the 1930s, the discovery of the East Texas oil fields caused oil prices to plunge. The oil companies were saved by the Texas Railroad Commission that was empowered to set production quotas on oil wells in Texas and Oklahoma to conserve a natural resource that was being squandered at prices as low as 10 cents per barrel. The oil companies used the resulting price of oil in the Gulf of Mexico as a marker price for worldwide oil.

OPEC founders learned how to control the oil price through production quotas from the Texas Railroad Commission. But with one big difference – the oil price when greedy oil companies ran things ranged between $10-$30 per barrel in current dollars for nearly a century of time until they lost control during the 1973 oil crisis. Now OPEC runs the show. The benign oil producing governments solicitous of our better interests are now bickering over production quotas that will establish a price of oil above or below $100 per barrel. Our friends in Saudi Arabia are concerned that we do not pay too much for oil while our friends in Iraq want to sock it to us along with our not-so-friendly friends in Iran. Would you expect our friends in Iraq, who have not and will not pay us one cent for the billions we spent there, to do otherwise?

High gasoline prices and high food prices (there’s a lot of oil in food) is putting the final squeeze on the economy. Walmart announced that its customers, who mainly live paycheck (or welfare check or unemployment check) to paycheck, have noticeably cut back on consumer purchases. Guess what – this means fewer jobs for manufacturing, although this is a problem for China, not the U.S. since Walmart buys everything from China as a corporate policy. Even so, the latest reported employment gain of a meager 50,000, made up mainly of a hiring binge for hamburger flippers, shows that the economy may be stalling. Throwing trillions of dollars at defunct banks and corporations (AIG, GM) has not accomplished anything in terms of creating jobs. Now we do not have the trillions that could have been poured into a modern mass transportation system and going green with solar and wind farms that would have created jobs.

Comments (2)
2 Friday, 10 June 2011 12:33
How do you arrive at $0.50/gallon in highway taxes? Gasoline is taxed at $0.184/gallon by the federal government and diesel is $0.244/gallon. So the excise taxes are about 1/2 what you claim them to be.

The total state and federal tax burden on the fuel comes close to the $0.50/gallon you claim, and that still makes them the second highest in terms of revenue/gallon of fuel. But it's not $0.50/gallon.
1 Friday, 10 June 2011 11:51
this is an excellent article..nice read

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