Q&A – What’s the Immediate Cost of the Russia - Ukraine War for Floridians?
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Today’s Entry: Brian, I’d like your insight into what the real cost of gas is going to be for us. Listening to analysts and reporters throw numbers like $6/gal around like its no big deal is maddening! Maybe that’s not a big deal for elitist media types but it is for most of us! Please give us an idea of what we’re really looking at here because some of us need to plan.
Bottom Line: First, I hear you and understand. I’m of the opinion that when you hear talk of $5, $6 or even higher gas prices as though its just to be expected – two factors are in play. Approximately 90% of news reporters are aligned with Democrats who, for many years have called for higher gas prices as a means of attempting to get people to use less of it due to environmental concerns. This is to say many on the left are happy to see high gas prices, aside from a secondary desire to downplay the implications out of deference to Biden. So yeah, don’t expect to hear a sympathetic tone from most news reporters or even responsible reporting on Joe Biden’s policy decisions being directly responsible for all of this. As for what we can expect to pay for gas going forward as a result of the spike in oil prices...
First, you’ve got to realize what the price at the pump is based on. The breakdown goes like this:
- 53% - oil
- 21% - taxes
- 18% - transportation and retail margin
- 8% - refining
You’ll notice that only just over half of the cost has to do with oil and the next highest expense is the tax. A tax that’s paid at the federal, state and local level. This is one area where taxes are much higher than average in Florida, especially South Florida. It's 60.4 cents per gallon once you factor in all local, state and federal taxes. In order to understand what current oil prices will mean at the pump going forward, we need to look at how long it takes from the time a barrel of oil is produced until the time it's made its way to your local gas station for you to purchase. The average is just under four weeks. This means that the oil price impact on what you’re paying at the pump today is based on where we were in late January. A month ago, the average price of WTI Crude which is what I’ll use for this illustration as it’s the most prominent in the US, was $85 per barrel. Based on $85 oil, the average gas price in Florida is $3.48. To figure out approximately what we will be paying in the future based $100 per barrel, which is approximately where we were yesterday as I was working on this analysis... It’s a basic math equation.
- 18% higher oil price which is 53% of the cost of gas which most recently averaged $3.48
Independent of other factors – like changes in refining and transportation costs (which will also rise to some degree due to the increased cost of energy), we’re starring at a minimum of a 33 cent per gallon increase a month from now – or an average Florida gas price around $3.81 cents per gallon for regular unleaded, if oil prices don’t retreat. So that’s what’s already likely baked into the cake and what you need to be prepared for going forward. As for what it would take to see gas around $5. That’d be oil just north of $150 per barrel. Now, again this is just for Florida.
Florida’s average price for gas is the 21st highest nationally – meaning gas is more expensive in Florida than most states – however twenty states have higher prices than us currently. There are already three states – California, Hawaii and Oregon which are already sitting above $4 per gallon for gas. In the case of California, prices are already at about $4.80 per gallon. This means they’re now certain to see prices above $5 with $6 looking likely. But the conversation takes me back to where I started the inflation conversation this week. The higher cost of energy will lead to higher costs for everything. Gas prices are an obvious and direct cost of spiking oil prices; however my current estimate is for a 2% increase in inflation over the next month (above what we’ve already experienced). That’s the bigger picture of what we need to be prepared for over the next month. Inflation approaching 10% year-over-year. It’s not what anyone wants to hear but it is what we need to be prepared for. Elections have consequences and while Florida made sound decisions last cycle, clearly the country did not, thus we’re all paying the price. But you can be that much more thankful you’re here as opposed to say, California.