Fuel prices? It’s all relative

Occasionally we print a reminder to Americans that they’re still living in a fantasy world of fuel prices. With all the moaning and tearing of hair one encounters about the price of gas at the pump it is easy to forget that much of the world has it far worse. At least in non-oil-exporting countries. The 29 June edition of the New York Times provides some evidence of this in its Week in Review section; specifically an article titled Savoring Bargains at the American Pump.

The good news is that the cost of gas at retail ranges from about $3.50 to $4.80 per gallon in much of the world these days. The price of gas at retail is another story altogether. The prices quoted in the article range from $0.25 per gallon in Venezuela to $10.05 per gallon in the Netherlands.

Why is this and what can be done about it?

The difference between cost and price, of course, is taxes. In several oil-producing countries, such as Venezuela, Iran, Saudi Arabia, Iraq, Indonesia, Mexico and China, taxes on other things are used to subsidize the price of gas at the pump. In Canada and Europe fuel taxes add significantly to the price. Americans currently get off easy with a mere $0.49 per gallon federal tax, while the tax on a Dutch gallon is $5.27! The reason for the high taxes in Europe is quite simple: to discourage unneeded driving. Guess what? It’s working in Europe and is starting to work, even with a low tax rate, in the U.S.

Now what do you think would happen to already-tanking SUV sales in the U.S. if the price of gas were $10 per gallon? According to the Times article, a 2008 Chevrolet Tahoe’s tank holds 26 gallons. According to Consumer Reports a Tahoe gets 14 miles per gallon. That would produce a fillerup hit of $250 every 350 miles (leaving one gallon in reserve) or $0.71 every mile in fuel costs. If your daily commute in that Tahoe is, say, a tad under 44 miles round trip then you’d have to fill up every eight commute days; sooner if you use the Tahoe for other travel as well. That could work out to almost $6,900 yearly in gas.

Or, to put it another way, if that Tahoe owner were to switch to full-time telecommuting at Dutch fuel prices, it would amount to a boost in pay of $7,000 annually (don’t forget changing the oil). Of course, at current U.S. prices the telecommuting fix would only work out to an annual wallet fattener of about $2,750.

Note that simple calculations of this sort haven’t escaped the attention of the Saudi and other OPEC planners. This week they announced their reluctance to increase oil production by very much because of their fear that continued high prices would drive the world, especially Americans, to switch to smaller cars and engage in more types of energy conservation.

Like telecommuting?

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