Caught Over a Barrel
Add the next largest component: state and federal taxes. They average 43 cents a gallon, says Falmy. Now you're up to $1.33.
"That's the base cost of gasoline," he says. "Nobody has any idea. The fundamental problem we face as an industry is that the two most important components in why prices are up and down aren't known" to the public.
Subtract $1.33 from the average price of gasoline, $1.81 that day, and you've got 48 cents left. "Forty-some cents has to supply all the costs, plus some profit, to get it from the refinery to the consumer," he says.
But wait! That's not all. The price of gas is affected by wild-card stuff like war, a cold winter, a production shutdown in Venezuela, unrest in Algeria, additive changes in California, blackouts and pipeline problems. This year's all the worse with demand rising, lower oil production in war-torn Iraq, and OPEC nations cutting production while upping prices to a near 14-year high. It's "the 'Groundhog Day' movie -- you keep waking up to the same situation," says Falmy.
Someone asks Falmy to predict where gas prices are headed. These economists don't see an end. Demand simply outstrips production.
Falmy says due to antitrust laws, he's not allowed to forecast crude oil or gas prices. But he's willing to talk profits. In fourth quarter 2003, the industry made 6.3 cents on a dollar while all other U.S. industries averaged 6.7 cents. "We are a below-average profit industry," he says. "The arguments that you hear from people saying we're driving things up for higher profits are simply absurd."
But then high gas prices are known to fuel absurd ideas.
How else to explain increased sales of so-called gas-saving devices claiming to boost miles per gallon?
"Buyers really need to beware of these claims," says Chris Grundler, chief executive of the Environmental Protection Agency's National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mich. "We have tested over 100 of these over the last 20 or so years and have found that very few of them provide any fuel economy benefits. Those that did were marginal."
The hot fuel-saving technology this year is called the "Tornado." For $69, this air-swirling gadget installs in a car's intake and, supposedly, creates a "vortex" of air that results in more efficient combustion. Its ads say tests show the Tornado increases mileage from 11 percent to almost 29 percent.
Sound too good to be true? "Nobody can believe this!" says Jay Kim, president of Tornado Air Management, in Santa Fe Springs, Calif., the manufacturer.
Kim says sales are up like never before: "A lot of consumers just love it. Tens of thousands of them."
But the government doesn't love it. The EPA has tested similar air-moving gadgets and none worked. The agency evaluated the Tornado's data and found no reason to think it can improve fuel economy, says spokesman John Millett.
Automotive expert Pat Goss, who hosts "Goss's Garage" on WJFK-FM and NewsChannel 8 and is a regular on PBS's "Motorweek," has tested more than a thousand fuel-saving devices over 25 years at his auto repair business in Seabrook, including earlier and current versions of the Tornado. The best it tested was a 0.6 mpg increase; the worst, a decrease in fuel economy.
"We get these things all the time," says Goss. "Not one of them that we ever tested did anything significant."
© 2004 The Washington Post Company