Nevada County Picayune and Gurdon Times Newspaper Archive

Gasoline Prices Probably Still Rising

Gasoline prices continue to rise and are expected to go up another 20 cents a gallon before motorists get any relief at the pumps.

Don Smithpeter, president of Smithpeter and Associates Oil Co., said the rise in crude oil prices has decreased the sale and profit margin for his company.

He said bulk companies are in the same boat as retail outlets as both have seen their profits drop to 2 or 3 percent per gallon.

The industry, he added, is heavily taxed. There is a state tax of 19.5 cents a gallon on fuel, while the federal tax is 18.4 cents per gallon. For diesel, the state tax is 20.5 cents, while the federal government collects 24.4 cents a gallon.

"People don't realize the tax they pay on fuel," he said.

The problem, Smithpeter said, is OPEC is controlling the prices and isn't doing anything to relieve them.

"Our government isn't addressing the problem the way it should be," he said, "and if they are, I see no indications of it."

Smithpeter said the government could control the issue better than it is, but at this time, all signs point to June before anyone sees the price of oil drop.

"In the mid-1970s," he said, "we saw gas prices go from upper 30 cents per gallon to upper 60 cents. In the 80s it went from 70 to 90 cents a gallon.

"I always thought it would be short-lived and not last forever, but now we've seen prices go from $1.05 to $1.50. I don't think we'll see prices go below $1.25 or $1.30 again.

Another part of the problem, he said, is it just isn't fuel prices rise. In addition, all lubricant prices have increased as well. But these increases haven't been as drastic as fuel prices.

Earlier this month crude oil prices hit a nine-year high at $32.15 per barrel on March 2, before dropping back to $31.51 on March 3.

Venezuela's energy minister said OPEC may not increase crude production in the second quarter of this year as demand is expected to drop.

Ali Rodriguez, an OPEC representative, said production would rise if prices stay above $30 per barrel.

According to information from the Internet, oil prices are up because of decreased production by OPEC nations last year.

The problem is about 75 million barrels of crude are being pumped daily while the global use is about 77 million barrels per day.

Oil ministers from Mexico, Venezuela and Saudi Arabia recently agreed to boost production to ease prices, but agreed on nothing specific. The agreement was in principal only.

These ministers will meet with other OPEC ministries to decide how much production should be increased. This meeting is expected to occur Monday, March 27.

However, Kuwait, Iran and other OPEC nations are happy with the current price of crude and are resisting increasing production.

Ali Naima, the Saudi oil minister, said stability in the market is the most important thing at this point.

There has been speculation production could be raised by 9 percent, or 2.5 million barrels per day. This would bring prices down to $20 to $22 per barrel.

But, even if this happened today, it would be more than a month before fuel prices in the US dropped. It takes about 40 days to ship oil from the Middle East to America.

Once in the US, the crude must be processed into the various products then shipped to the distributors.

There has been pressure put on the federal government to use US oil reserves to help reduce the price at the pump.

Currently the government has 565 million barrels in reserve and President Bill Clinton opposes using it in such a manner. Instead he prefers to let diplomacy have a chance.

If diplomacy fails, though, and the price of crude continues to rise, the President will consider to use the reserves.

Meanwhile, Pres. Clinton has directed the Small Business Administration to make government backed loans to small businesses hurting because of the higher price of oil. He asked for $86 million in loans to be made to those businesses existing under the 7(a) programs.

Australian commodities forecasters are predicting an "oil shock," saying it could derail the global economy, according to Internet information.

Crude oil prices higher than $30 per barrel are causing a substantial buildup of inflationary pressure resulting in higher interest rates and a decline in the US equity market.

This, the prognosticators say, has the potential of reversing the current trend of the global economy.

From 1990 to 2000 the state and federal fuel taxes went from 27 cents a gallon to 43 cents per gallon.

In 1993, the Omnibus Budget Reconciliation Act created a 43 cents per gallon fuel surtax to help reduce the federal budget.

But, this tax remains in place even though the federal government claims there is now a budget surplus for the fiscal year 2000 in the amount of $23 billion.

Experts are saying this tax could be reduced by 10 cents per gallon without adversely affecting the budget surplus.

This, it has been said, would also help the lower income people who have been hit the hardest by these increases.