Where Gas Prices Come From

People seem to want a free enterprise system, yet they expect the government to do something about high oil and gas prices.

You can’t have it both ways.

The U.S. government makes available offshore lease sites and areas of public lands for oil exploration and drilling. A private company can bid on these areas and hold the rights to discover oil resources. The private oil companies can explore for oil or not. They can hold the leases until they think the economy is right for their products, or sell the leases to make a profit.

In a nationalized oil industry, as in Mexico, the resources are owned by the nation as declared in their Constitution, Article 27. The government controls the supply of oil, dictates when oil refineries should release products to the public, and controls the price of a gallon of gas at the pump. All gas stations charge the same price for gas.

But we do not have a government-controlled industry. Private corporations buy the leases, do the exploration and drilling; own the refineries, pipelines and oil tankers; and sell the products on the global market. It is the Exxon, Shell, and British Petroleum multinational corporations that drive the price of gasoline.

If emerging markets demand more supply of oil and gas in China and India, then that results in higher prices here in the U.S.A. If OPEC decides to cut back on oil production, the price goes up due to lower supply.

So don’t expect the president to lower the price of a gallon of gas. It is the private, profit-making, free enterprise system that works on supply and demand in the global market.