Are You Paying Too Much for Gas?

Within a week of each other, two different emails appeared in my inbox. Both were forwarded to me by people that I love and respect, so I read them. They each offered a different solution to our current, record-high gas prices. One of these addressed purchasing gas from companies that did not import oil from Middle Eastern countries; the other addressed refusing to purchase gas from one particular company. Taken on face value, both had interesting points but one could question their validity.

The result is that they got me thinking...and that can be a dangerous thing.

First, let's look at one indisputable fact of how prices fluctuate: Supply and Demand. When there is a surplus of a product, the prices are reduced so that the product moves more quickly. When there is a lack of product, prices are increased to a level that the market can bear. This practice is in evidence every day. As this is not a dissertation on economics, I will trust that you have a fair knowledge of how it works. When the product in question is one that so many people rely on to carry out their normal everyday routine, such as gasoline, the prices can get pretty high and we just suck it up and buy it anyway.

Email Number 1

Now, let's take a look at the first email that I received. This email supposedly originated from a Coca-Cola executive that is a friend of a former Halliburton employee. I tracked this one down on TruthorFiction.com. It is, as you would expect, fiction. The author of this email is trying to gain legitimacy by claiming to have its roots from someone 'in the know' about the oil industry (Halliburton engineer) as relayed to a person who, one would think has a decent understanding of business and pricing practices (Coca-Cola executive). I mean, let's face it; a former engineer for Halliburton should have some clue about the oil industry, wouldn't he?

While the source may be questionable, the point it presents is not too far off the mark. The email suggests that we, as American consumers, refuse to buy any gas from Exxon/Mobil for the remainder of the year. This boycott of Exxon/Mobil, according to the email, will cause a surplus of gasoline for them. They will be sitting on large quantities that they cannot sell because no one is buying their gas. As a result, they will need to lower their prices to entice people to buy their gas again. If they lower their prices, then other companies will be forced to do so as well in order to remain competitive. The email goes on to suggest that, after reading it, you need to forward it to at least ten other people. The author of the email certainly understands the value of word-of-mouth advertising. If each reader tells ten other people, then the word will spread very quickly. Obviously, the only way for this plan to succeed is for enough people to refuse to purchase gas from the same company - in this case, Exxon/Mobil - for a long enough period of time for a significant change to occur.

For my dollar, I do not buy gas from Exxon/Mobil anyway. I do not have a personal vendetta against them. We just have a glut of gas stations within about a half-mile radius of each other that are conveniently located near our home. On one corner sits a Mobil station. Across the street, next door to our preferred grocery store, sits an Exxon station. A little further down the street is a Gulf station. All three have convenience stores should we need to grab a quick snack or beverage, so that doesn't influence our choice. However, the Gulf station is consistently two or three cents cheaper per gallon than the other two. Mind you, I am not a proponent of driving miles of my way to get cheaper gas. There is nothing saved by using an extra gallon of gas to save $0.05 per gallon. When the cheaper gas is right next door to a more expensive option, however, you can be sure that I am going to opt for the savings.

Email Number 2

The second email that I received painted a different picture. This one had more of a political point of view. It suggested that we refuse to buy gas from any oil company that imports oil from the Middle East. It said that the Saudis are boycotting American goods, so we should boycott their goods - chiefly, oil. Essentially, it asks the question, "Why are we putting money into the pockets of foreign nations that do not particularly care for America?"

Again, I tracked this one down on TruthorFiction.com. The information there is a bit old (last updated on 03/23/03) and it disputes any claim that gas prices will ever reach $3.00 per gallon. Well, they have surpassed $3.00 per gallon. They claim that this story is both truth and fiction as aspects of this email are based in fact.

The author of the email suggests that buying oil from the Middle East only supports terrorism. This, however, is not the point of this article. I do not want to take this down the political road. You can make your own conclusions on the impact of oil purchases and terrorism.

From an economic point of view - it only makes sense to buy from companies that are buying and refining locally. This is largely due to the fact that the cost of transporting goods overseas is added to the cost that we pay for our products. It is not absorbed by the oil companies out of the goodness of their hearts. They are in business to earn a profit. The only way to do that is to defray the rising cost of doing business by raising their prices. By shortening the supply lines, this cost is reduced.

The email goes on to provide statistics on oil companies. It details the amount of barrels that individual companies have purchased from the Middle East. The site, TruthorFiction.com, also verified this information from the statistics provided by the U.S. Department of Energy (DoE) for calendar year 2000 while the email does not specify the year that they took their data from.

I went on over to the DoE site and took a look for myself. What I found was that Canada (2,470 barrels per day) was the largest supplier of foreign oil for the U.S. in the year 2000, followed by Saudi Arabia (1,563 bpd) in a second place finish and Mexico (1,195 bpd) in a relatively distant third. This is relatively good news as Canada and Mexico are right next door. For a complete listing of the purchases made by oil companies, you can access a file formatted in MSExcel by clicking here: Company Level Imports. This report is provided by the Energy Information Administration.

Reducing our dependence on Saudi and other overseas oil is cost-effective. As the email suggests, the way to do this is to not buy gasoline from Saudi-importing companies. According to the DoE report in the email and verified by TruthorFiction.com, these companies include Shell, Chevron/Texaco, and - you guessed it - Exxon/Mobil. As well as the offenders, the email lists the companies that did not import Saudi oil. These include Sunoco, BP, and Citgo (though the author of the email blasts Citgo for buying "from South America, from a dictator that hates Americans.")

According to the DoE, due to the way oil companies do business, there is no guarantee that the gas that you pump into your tank did not come from Saudi Arabia or other overseas countries. A company, such as Sunoco, may not have physically purchased and imported oil directly from Saudi Arabia. It is entirely possible that they bolstered their supply by purchasing from another oil company that did import from the Middle East. Due to this practice, boycotting the importers will not have a tremendous impact on our foreign oil dependence. One could argue that the impact would not even be significant.

And Now For Something Completely Different

If we reduce our overall demand on oil, no matter which country is providing it, we can directly impact the prices. Remember, supply and demand.

How do we reduce our demand? Well, the answer to this question is manifold:

1.) We can reduce our personal use of gasoline. Carpool, use public transportation, use a bicycle, or *gasp* walk to our destinations. Obviously, it is not always possible to utilize these forms of transportation - maybe no one is taking a similar trip that you can carpool with, the bus doesn't stop anywhere near you need to go, it is just too far to walk. Look for the opportunities that you can act upon. Sharing even one ride per week to work will reduce your gas consumption.

2.) Tune up your car. A properly tuned engine uses less gas than one that is poorly maintained. New spark plugs, clean intake valves, new air filters, etc. all add up. Sure, the maintenance is not free, but the money saved over time by keeping you car well maintained adds up to a considerable sum. You will get more miles to the gallon.

3.) Go hybrid. Not everyone can afford a new car right away. At some point, however, you will need to replace the one that you are currently driving. When the time comes, investigate the benefits of a hybrid. Some states will even offer incentives to new car buyers for going hybrid.

4.) Keep your tires properly inflated. Maintaining proper tire pressure goes a long way to keeping those miles per gallon up near the optimal level. Under-inflated tires also wear out faster, so keeping them properly inflated will extend their life.

5.) Do not let you car idle when parked. This is just plain common sense. If your car is parked, shut off the car. The biggest hit to gas mileage occurs when a car is running but not moving. If you do not foresee moving forward in a reasonable amount of time - such as, the time it takes for the traffic light to turn green - shut off your car!

6.) Use bio-fuels. This is another growing energy source. As with the hybrid option, this is not currently an easy step to take. Many diesel engines can convert to bio-fuel without much difficulty, but not so for gasoline engines. Still, this is an option worth exploring.

The above list is by no means an exhaustive one. These represent just a few things that we can do to reduce our gasoline consumption.

So Here's The Thing

Whether your motivation is political, economical, or environmental, I really do think that it is possible for us to make a difference in the cost of gasoline. To paraphrase a well-known document...

"We, the People of the United States of America, in order to reduce our dependence on foreign oil and attempt to bring down the high cost of gasoline, do establish..."

First, will it really inconvenience you in anyway to boycott one oil company? No, not really. Why not give it a try? If we were to build upon that first email that I received, then we should all avoid filling our tanks at any Exxon or Mobil gas station. This is not a personal attack on Exxon/Mobil. It is simply that this email has been circulating for some time and it may have already started the ball rolling. It is certainly easier to push the ball along in the direction that it is already headed than to try to reverse its course. Obviously this cannot be all-inclusive. Employees, owners, and suppliers to Exxon and Mobil gas stations will not be too inclined to boycott the source of their income. If enough people sign on, however, this can be effective.

Second, we should not buy gas from any company that buys its oil from any overseas countries. Exxon/Mobil is already on this list, so whether you believe email number two or not, you can support this initiative without any additional effort.

Third, we should reduce our overall use of gasoline. A direct hit to the demand will have an impact on the prices across the board. This option also happens to be the most effective. If everybody decides to adopt two, three, or more of the practices that can reduce gas consumption and sticks to them we will make a greater impact than any boycott ever could. Reducing the demand for gas and the dependence on ANY oil, foreign or otherwise, will do wonderful things for the environment as well.

Why This Could Work

Based on what we know about supply, demand, and competitive pricing; there is no reason why an effective ban of Exxon/Mobil combined with a reduction in gas use would not start a downward pricing trend. The key word is 'effective.' Enough people need to get behind the boycott and conserve whenever possible for any change to result from this.

According to the Senate report; Gas Prices: How Are They Really Set? prepared by the Majority Staff of the Permanent Subcommittee on Investigations:

"The price of gasoline that is paid by consumers at the gasoline pump reflects the cost of crude oil that is purchased by the refiner; the refiner's processing and distribution costs and profits; the retail distribution, marketing and station operating costs and profits (and sometimes losses); and federal, state, and local taxes."

Further, the report states that prices are influenced by competitors. You can read the full report by clicking this link: Gas Prices: How Are They Really Set?

By adhering to the suggested boycott of Exxon/Mobil, we can influence them to reduce their retail prices to entice customers to return to their pumps in an attempt to sell off their surplus. Other companies will then have to follow suit in order to keep our business from going back to Exxon/Mobil.

Yes, I do think that that we can collectively reverse this current gas price crunch. While the emails I received are not quite correct, a valid argument can be made. Buy from local oil companies only (US, Canada, and Mexico), pit one company against the others by refusing to buy their gas, and reduce our individual gas consumption - all three things combined can help to influence the supply and demand equation in our favor.