When my father started work in 1940 in a union machine shop he was paid 35 cents per hour. Gasoline cost 18 cents per gallon. So he had to work about 30 minutes to buy a gallon of gas.

When I started work at a golf club the minimum wage was $1 per hour and gasoline cost 31 cents per gallon. So I worked about 21 minutes buy a gallon of gas.

When my daughter started work in retail the minimum wage was $3.80 per hour and gasoline cost $1.15 per gallon. So she worked about 20 minutes to buy a gallon of gas.

If my grandson started to work today in Maryland his minimum wage would be $12.50 per hour. Today a gallon of gas costs $4.88 per gallon and rising. So he would have to work approximately 24 minutes to purchase a gallon of gas.

Over the last 80 years the value of minimum wage work in relation to the retail cost of gasoline has stayed pretty much flat (It is a little more complicated than I present because retail price includes taxes). But, we complain without really knowing what is involved with the pricing of gasoline. So, I tried to find out recent trends and here is what I learned.

According to historical data:

Domestic U.S. oil millions of barrels per day

Date Production Export

01/1986 8.94 N/A

09/2005 3.80 0.94

10/2015 9.16 4.20

08/2016 8.49 4.98

01/2020 12.90 9.15

08/2020 9.70 8.07

12/2021 11.80 6.62

02/2022 11.60 7.45

Source: U.S. Energy Information Administration

The drop in production from January to August 2020 was in response to a worldwide drop in demand during the first year of the COVID pandemic.

By December 2021 production increased to about 90% of the January 2020 high. Recovery occurred in less than 16 months. In contrast it took almost 10 years to recover from the low in 2005 to reach the 1986 level of production.

In August of 2020 over 80% of domestic production was exported. In February 2022 over 60% of domestic production was exported.

We also import oil. Why? U.S. crude oil refineries require specific qualities of crude that not all domestic crude can meet. During the week of June 10, 2022 we imported about 6.99 million barrels of crude per day while exporting 3.73 million barrels per day (US EIA).

Refiners and producers are different and separate businesses. Refiners buy oil from producers. Sometimes market conditions might allow for foreign oil to be less expensive than domestic oil. It would be remiss if a refiner didn’t take advantage of the better deal of the moment.

The reasons for today’s increasing prices of gas at the pump are many with complicated interrelationships. The range of reasons include: increased pressure by stock holders and commodity traders for increased profits; increased worldwide demand; the impact of war in Ukraine; a backlog of unused drilling permits that need to be used before new permits can be activated by drillers; a pandemic reduced qualified workforce; political winds affecting future profit predictions; limited refinery capacity; and more.

During the last 40 years the oil industry’s “drill baby drill” approach to production led to periods of glut supply that left crude prices low. But that didn’t necessarily transfer to major long-term lowering of the retail price at the pump.

Basically, prices at the pump will continue to increase because we are willing to pay (even though we grump about it). When we stop buying the price might decline. But don’t bet on a big adjustment.

Oil folks have learned that by controlling supply through increased exports or decreased pumping they can control retail price. Unlike the farmer’s corn crop that needs to be moved when ready, oil can stay in the ground until the price is right.

The U.S. government doesn’t tell refiners what they can charge for their products. The U.S. government doesn’t tell refiners that they have to buy domestic oil. The U.S. government doesn’t tell producers that they cannot export (although it did for a while).

Oil is valued in a worldwide marketplace and the oil moves to those willing to pay the highest price. Right now oil folks are searching for what the highest price might be and are smiling all the way to the bank.

Herb Brodie writes

from Cliffs City,

near Chestertown.

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