NEAL CONAN, host:
This is TALK OF THE NATION. I'm Neal Conan in Washington.
Gas prices continue to dominate the news. And here in Washington, the President, Democratic, and Republican lawmakers have all rushed out to announce competing proposals. And most analysts say that none of it is likely to amount to much, that we're likely to see high prices well into the summer. Meanwhile, this morning, ExxonMobile announced first quarter earnings of $8.4 billion.
Today, we're going to try to deconstruct gas prices. How did we reach 2.91 per gallon--today's national average--when a year ago that same gallon of gas cost 2.24? And why is oil $75 a barrel, when last year it was $55? And just how do gas station owners know when to change those annoying numbers anyhow?
If you have questions about why oil and gas prices are so high, give us a call. Our number here in Washington is 800-989-8255. That's 800-989-TALK. The email address is email@example.com.
Later in the show, John Lucas retells a story we only think we know well--June 1941, Hitler and Stalin.
But first, why are we paying so much at the pump? And we begin with Dana Milbank, who covers political theater as the national political reporter for the Washington Post. He joined us on a pay phone from Capitol Hill.
Nice to have you back on the program, Dana.
Mr. DANA MILBANK (National Political Reporter, Washington Post): Nice to be with you.
CONAN: And I understand you've been chasing the speaker of the House?
Mr. MILBANK: I am enjoying quite a scene. In fact, just five feet through the glass of my telephone booth, John Boehner, the House majority leader just left in a pack of 50 journalists. They've been holed up in this meeting. I'm still staking out the speaker, who is with the Ways and Means chairman. They're having a lot of trouble getting agreement in their party on pretty much anything these days. But the issue of the moment is lobbying reform.
CONAN: Lobbying reform. And this, of course, goes back to the Jack Abramoff scandal. But they're, of course, plagued with oil prices and gas prices, too. This is a big political issue.
Mr. MILBANK: Exactly, this on everybody's minds. In fact, the big crisis here is the speaker is supposed to go to a BP station to have a gas prices event. And this has held him up. He's very late for his BP event, which is itself something of imitation of the Democrats who had an Exxon event yesterday, the two dueling Capitol Hill gas stations.
CONAN: Now, there was quite a scene, as you described yesterday outside that Exxon station on Capitol Hill, as one Democratic lawmaker after another drove a whole block to denounce high gas prices.
Mr. MILBANK: They did, round trip. But it was an exhausting trip. And then, of course, the cars have to idle. And this says nothing of all the television crews in their minivans. We're going to see a repeat of that today. The speaker has to go about seven blocks from here, but his armored Chevy Suburban is waiting outside.
CONAN: Well, let me just, in fairness, read from your article today. Senator John Sununu, Republican of New Hampshire hopped in a GMC Yukon, 14 miles per gallon. Senator Jim DeMint, Republican of South Carolina, climbed aboard a Nissan Pathfinder, 15 miles a gallon. Senator Ben Nelson, D-Nebraska, stepped into an eight-cylinder Ford Explorer, 14 miles a gallon. Senator Dianne Feinstein, D-California, disappeared into a Lincoln Town Car, 17 miles a gallon. Senator Edward Kennedy, a Democrat of Massachusetts, came up into an idling Chrysler minivan, 18 miles per gallon. You went on.
Mr. MILBANK: It goes on and on, of course. But we should give special shout out for Richard Lugar, senator--Republican senator from Indiana, who jumped into a Prius.
CONAN: The only senator, you say, who can speak freely on this issue, because he's retiring, was Mark Dayton, a Democrat of Minnesota. And you quote him as saying, "People say, understandably, solve our energy problems right now. But don't make us do anything differently."
Mr. MILBANK: Right. And that's exactly the conundrum here, illustrated by lawmakers of both parties talking about how do we solve this problem, and then, symbolically getting into their enormous SUVs. The fact of the matter is Congress can't do much about this current gas crisis. It's an international problem. They don't have a lot of say over this. But the one thing that everybody knows that can be done is conservation. And it's the one thing nobody wants to talk, because nobody wants to make a sacrifice for themselves. And certainly, lawmakers don't want to ask the American people to make a sacrifice.
So we're sort of stuck in this debate where they're saying well, why don't we deplete the Strategic Petroleum Reserves, or why don't we increase taxes on oil companies? Which may make somebody feel good, but it's not really going to address the problem.
CONAN: And at the same time, as you point out, it's not likely to solve the problem. And at the same time, in addition to these proposals to bring down oil prices and gas prices, there's a lot of finger-pointing going on saying, and, of course, the other guys are responsible for this problem.
Mr. MILBANK: Sure. And obviously, with the Republicans in control of the White House and both Houses of Congress, they are going to get the largest amount of blame for this. The Democrats are clearly on the offensive on this issue. They know, of course, that it's something of a cheap shot, that it's really out of everybody's hands. And the Republicans are really scrambling for a way to push back at that. This is one reason the caucus is in so much disarray, and we're seeing this sort of meltdown before our eyes today.
CONAN: Mm-hmm. If the politics of gasoline favored Democrats at the moment, you write, "The insincerity is universal."
Mr. MILBANK: Well, for sure. I tried to do sort of a random sampling of cars parked in the places for senators and their staffs. I did a little corporate average fuel economy for the Democrats and the Republicans. The Democrats were a little bit better on the fuel economy. But they were, neither was--party was one you'd want to brag about.
CONAN: A fuel efficiency rating, you note, could not be found for the 1970s era Volkswagen Thing owned by Senator Richard Burr of North Carolina.
Mr. MILBANK: No. That is a fairly small vehicle. But who knows? They might still use leaded fuel in that.
CONAN: Who knows? Those Things are pretty ancient. There might be hamsters in there. That's what we all suspected all along.
Dana Milbank, thanks so much. And good luck on your stake out. We'll look forward to reading about it tomorrow morning.
Mr. MILBANK: All right. Thanks a lot.
CONAN: Dana Milbank, the national political correspondent of the Washington Post, joined us from a phone booth outside the speaker of House's office in the Longworth Building on Capitol Hill.
Joining us now is Tom Kloza, chief oil analyst for Oil Price Information Services, OPIS, an independent publication about wholesale gas prices. He's with us from San Antonio, Texas, where he's attending a gasoline conference.
Nice to have you back on the program.
Mr. TOM KLOZA (Chief Oil Analyst, Oil Price Information Services): Hi, nice to be here. You know, one thing I mentioned, or I might mention relative to your last guest, is when they put in the regulations for underground storage tanks, that have impacted stations across the country, one of the last places to be converted to clean tankage and to adhere to the regulations were the storage tanks for gasoline for Congress. So...
(Soundbite of laughter)
CONAN: On that...
Mr. KLOZA: ...keep that in mind.
CONAN: On one those little regulations, Congress decided to impose on itself, at least not for quite some time.
Mr. KLOZA: That's right. Maybe they still allow smoking within the chambers. I'm not sure.
CONAN: So anyway, is Dana Milbank's analysis right, that, you know, as opposed to all of this finger-pointing and kafuffle on Capitol Hill, that at least one of the reasons why oil prices is so high is all those SUVs?
Mr. KLOZA: Yeah, I would say one of the things that's frothing, as high as oil prices right now, is insincerity. And one of the problems with gasoline is that, you know, the answer lies very much in some sort of conservation measures. And unfortunately, politically that means asking your constituency to make a sacrifice. You cannot get away from that as part as a large answer to the problem.
CONAN: Meantime, deconstruct for us, if you would, the price of a gallon of gas. How much of it is for the oil that was purchased? How much goes to the refiner for refining it? How much for taxes, and so on?
Mr. KLOZA: Okay, sure. Okay, this won't tell you how much they make on the crude, but crude oil has been roughly accounting for about $1.06 to a--$1.60 to $1.70 of the per gallon price at the pump. The refining margin has probably been about between 50 and 70 cents a gallon. Average taxes are about 45 cents or so. And during the traditional year, the mark up that the retailer has, the gross markup is about 15 cents a gallon.
Now, if you dig a little bit deeper into the crude oil price, you will find that in most oil company annual reports, they are still bringing crude oil to market at numbers in the single digits, seven, $8 a barrel. So it's selling for, you know, up to 10 times the price, or 10 times or more the price that they're getting for it…
CONAN: Mm hmm.
Mr. KLOZA: …so there's windfalls there. On the refining side, refinery margins used to be 15 to 20 cents a gallon, now they're 50 to 60 cents. So there is a renaissance that's ongoing there. On the tax side, we haven't seen many changes there. And on the retailer profitability side, where that 15 cents is, oh, somewhere between 7 and 10 cents a gallon of that 15 cents profit that the person who's pumping your gas is making, is going to the credit card companies. Because most companies are buying their gasoline on credit cards that charge processing fees.
CONAN: If you have questions about why the oil of--why the price of oil and gas is where it is, give us a call: 800-989-8255, 800-989-TALK. E-mail is
And why don't we begin with Allen(ph). Allen's calling from Boston.
ALLEN (Caller): Hi, my question has to do with the--more or less, consistent range of prices for gasoline across the country, regardless of the distance from the refinery. And you would think that if there was some kind of competition that was driving the market, independent of all these other factors that go into a gallon of gasoline, that there would be much more variability in the overall price across the country than the limited range than we seem to see.
CONAN: Hm. Tom Kloza?
Mr. KLOZA: Well, there is considerable variability right now. I'm looking at state-by-state averages that we compute for AAA, based on about 90,000 transactions each day. And if you're driving east from California, you're paying an average of about $3.18 in California, and you're probably paying only--and I would use quotations for that--only about $2.60 a gallon when you move through the Rockies, and then get into the Midwest and you might pay $2.75. And then get back on the East Coast here, and it's above $3.
A lot of the variability has to do with--is the tax treatment. And one of the realities is gasoline is that, you know, when you transport gasoline across huge swaths of the country, you do so in a pipeline system, which for the amount of volume moving and the distance that it traveled, it's very cheap. You know, one of the reasons why ethanol is getting blamed for so much of the price run up is, you can move gasoline by pipeline and move it from the Gulf Coast to the New York Harbor, for about 3 cents in change. To move ethanol from the Midwest to the coast can, you know, sometimes cost you 15 cents or more, because you have to move it in rail tanks or in trucks. So that's one of the reasons. But there is a little bit of diversity out there. The Rockies are behaving a little bit like Switzerland. They're not part of the international market for the moment. And that's a little bit puzzling.
ALLEN: Wouldn't you expect the price closer to the refineries to be much cheaper, because your transportation costs wouldn't be in--and I guess, the underlying point behind this is, I'm wondering whether the gas companies have gotten together--the oil have gotten together, and have sort of, in a backdoor or backroom kind of a way--kind of generally set prices across the country to make it so much more uniformed than you would expect it to be if they were really competing with each other.
CONAN: Allen, I'm not sure that Tom Kloza's going to be able to answer that question in the 25 seconds we have left in this segment. So I'm going to put you on hold. We'll come back and try to address that at the other side of the break. Can you stay with us, Allen? All right, I think Allen can stay with us. His pot was down there for a minute. But anyway, we're going to put him on hold, not hang up, that's a good button push there, Mr. Clever. And we'll be right back after the break.
I'm Neal Conan. It's TALK OF THE NATION from NPR News.
(Soundbite of music)
CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. We're talking today about gas prices. Last year at this time, a gallon of gas cost, on average, $2.24. This week, it's up to $2.91, a 67-cent increase. How come? At our Web site, you'll find tips on saving gas from the energy-conscious car talk hosts. NPR's Scott Horsley also writes about what goes into the price of a gallon of gas. And you can read Dana Milbank's piece from this morning's Washington Post at NPR.org.
Right now, let's get back to our guest, Tom Kloza, chief oil analyst for Oil Price Information Services. If you'd like to give us a call: 800-989-8255, 800-989-TALK. E-mail is firstname.lastname@example.org.
And let's get Allen, back on the line, Allen calling from Boston. And, Tom Kloza, just before the break, he was asking the question of, really, have the gas companies gotten together somewhere and decided to set prices?
Mr. KLOZA: Well, yeah and I'd really like to disabuse everyone of that notion. They are not philanthropic organizations. Let's make that clear from the beginning. But the public really needs to get rid of this notion that they get together and collusively set prices. First of all, they don't have to. If there's anything collusive, it's the collusive sort of flow of money into oil as a hedge against inflation right now. And that flow of money, which is based much more on crowd behavior than anything sinister, is why we saw prices for crude oil at $75 a barrel, and why we saw gasoline prices in the wholesale markets go up about 90 cents a gallon from where they were Valentine's Day.
You know, there's an interesting thing about crowd behavior: it leads to extremes and excess. And we've subsequently backed off on the wholesale markets by about 20 cents a gallon in the last week or so. I believe--and I hope that this is good news--but I believe that you've probably seen something close to the peak that you're likely to see for the first seven months of this year at retail across the country.
And there are going to be people who believe that, well, we saw that peak, because all of the noise came up and the Sturm und Drang of people expressing their outrage, and the oil companies got together and said it was too much. The truth is, the financial markets carry their water for them, and everyday in the New York Mercantile Exchange and the International Petroleum Exchange, you have what amounts to electronic and open outcry bids and auctions that determine the prices, not the oil companies.
CONAN: Allen, you satisfied with that?
ALLEN: Well, I hear it, but it also doesn't seem to translate into some kind of strategy for trying to actually intervene on it. And as a consumer, and one of many people, you know, I'm sure that I share the frustration of many…
CONAN: Mm hmm.
ALLEN: …in the county, who say well, I'm sort of powerless to go along with this, because you're talking about larger market forces. In other words, I just have to put up with it. And I can conserve, I can buy a different car, but I'm--I mean, I just recently purchased one. If you take a look at the gas mileage listings, you have three categories: you know, the real gas hogs, the ones that are sort of in the middle, and the ones that are, you know, the Hybrids and the ones that get good gas mileage.
It's not like you have many, many choices that are going to really make that much of a difference. It's sort of frustrating to just sit by and sort of see this happen. And it seems like it's larger forces that are moving you. There's only so much you can do, so…
CONAN: Mm hmm.
ALLEN: …also a frustration.
CONAN: I think a lot of people would agree with the frustration part, Allen. Thanks very much for the call.
ALLEN: Thank you.
CONAN: All right, here's an e-mail we got from, Joseph Klein(ph): “The media focuses on total profits reported by the oil companies”--mentioned earlier today, ExxonMobil, $8.4 billion the first quarter, I think. “While I'm no fan of any large corporation,” Joseph writes, “it's only fair to point out the rate of return is not far above the national average, and is below that of several other large industries.”.
I think that $8.4 billion, Tom Kloza, is about a 7 percent return for ExxonMobil, something like that?
Mr. KLOZA: I'm not sure of the returns. And I probably subscribe to the theory that earnings reports are managed more than they're actually released these days. There's no question that they're making an incredible profit right now on crude and unrefined products margins. I want to go back to what you said, though, about a moment--about buying hybrids and what ever.
CONAN: Mm hmm.
Mr. KLOZA: You know, what the public has to realize, is there is no crash diet here. There is no sort of crash, fad diet. But slowly, we have to get higher cafe standards for cars. And slowly, we have to get rid of the nonsensical thought that soccer moms and whatever, have to be driving what amounts to pope mobiles that get very inefficient gasoline, and that it's part of the American birthright. It's not.
And people have to look themselves in the mirror and realize that that is a significant part of the problem. There are analysts who've suggested that the only way that Americans will every really cut back on how much gasoline they use is if you vent some of the exhaust within the cabin itself.
(Soundbite of laughter)
Mr. KLOZA: And they probably have something there.
CONAN: That's a possibility. Let's talk now with, Jennifer(ph). Jennifer calling us from Marbery(ph), is that right, in Massachusetts?
JENNIFER (Caller): Oh, Marlborough.
CONAN: Marlborough, okay, misspelling--inability to put in all those o, u, g, h's, there in the screen in front of me. Go ahead, please. I'm sorry.
JENNIFER: Hi, yeah my comment is just that, I don't understand the outrage. I'm not outraged. I think gas is still too cheap, honestly. I don't understand why we have the idea that we are entitled to $3 gas when other countries pay upwards of $8 per gallon. And I just, you know, I'm happy to see gas prices rise--and I'm not rich--because I think the only way that people are really going to cut down on how much they drive is if they can't afford to do it.
CONAN: Mm hmm. Tom Kloza, she's got a point. Gas is very expensive in places like Japan and in Europe. Nevertheless, Americans have become pretty used to lower gas prices.
Mr. KLOZA: Well, again, this is become almost a silly little issue for us here. And it's one that gets a lot of political resonance and a lot of grandstanding. We do have the highest wholesale prices in the world. But the reason that we pay so much less than other industrialized countries is we, by far, have the lowest taxes of any of the industrialized countries on gasoline.
And at some point, one has to realize that this is not a renewable fuel that we're using, and we have to get more responsible. But gasoline and saving money on gasoline is something which is magical within the American landscape. It's almost like the money that one wins in an NCAA football pool or on the golf course. Saving money on gasoline or not spending a lot of money on gasoline, those dollars are valued very differently than the dollars you spend on your cable bill, or on other sort of daily bills.
And at some point, someone will have the political courage to get out there and say that there is a solution here. Companies are going to--are entitled to make a reasonable rate of return, but we need to think about--the notion that one of the biggest problems we have, particularly in metropolitan areas, is the congestion, which can annoy us much, much more than seeing those $3 signs on the pump.
CONAN: Mm hmm. All right, Jennifer, thanks very much.
JENNIFER: Thank you.
CONAN: We thought it would be interesting to go to a gas station owner. And Eric Schreiber joins us now. He's the owner of the Oasis Main Street Market and Texaco in West Palm Beach, Florida, and he joins us from his office there. Nice to have you on the program today.
Mr. ERIC SCHREIBER (Owner, Oasis Main Street Market and Texaco in West Palm Beach, Florida): Thanks for having me, Neal.
CONAN: And how much are you charging for a gallon of gas today?
Mr. SCHREIBER: Right now, we're at $3.05 for regular.
CONAN: And is that up markedly, or about holding steady?
Mr. SCHREIBER: It was up for the last few weeks, but it's starting to go down. We're actually going to lower this evening to $2.99.
CONAN: How do you know when to change your prices, and by how much?
Mr. SCHREIBER: Well, it comes down, Neal, everyday about seven o'clock we get a fax in from Chevron-Texaco that shows us what the wholesale price is going for. We add on the taxes, freight, credit card markups for what, you know, we have to pay in the two to three percent credit card fee…
CONAN: Mm hmm.
Mr. SCHREIBER: …and then factor in a reasonable profit for us, and then we set our street price.
CONAN: And how much profit do you make from a gallon of gas?
Mr. SCHREIBER: Oh boy, a couple days ago, we were actually loosing 2 cents a gallon to yesterday, we're up about 10 or 11 cents.
CONAN: How much of a factor is the competition? I assume that part of Florida, like most parts of Florida, there's a few other gas stations in the area.
Mr. SCHREIBER: Absolutely. We do a survey, you know, daily or every other day and we look at our competition, see where they are, try and price ourselves accordingly. It all depends, you know, it's the corporate stores are the ones that try and beat you up on the street price, so you've got to be very careful of that.
CONAN: Mm hmm. All right, here's an e-mail question from, Denise(ph) in Fairfield, Iowa. “Why does the price at the pump rise nearly immediately when the price of crude goes up? Do they do this just because they can?”
Mr. KLOZA: Well, let me tackle that one and follow up on something that was just said.
CONAN: This is, Tom Kloza. Go ahead, Tom.
Mr. KLOZA: The oil markets have become, like it or not, like an adjustable rate mortgage that adjusts everyday. And the average price change, or the difference between the low and the high range for gasoline prices on--as a commodity so far this year, is about 7 cents a gallon, separating the low and the high. Dealers, like the gentleman that's on here, probably have 50 or 60 percent of their net margin at risk everyday from one price change rendered that day.
So, very quietly in the last 20 years, we do have this market which is incredibly volatile. It's the equivalent of a Dow that changes 400 points a day, and perhaps 1,500 points a week…
CONAN: Mm hmm.
Mr. KLOZA: …and it is passed immediately--perhaps a 12-hour delay, or whatever--after the sessions conclude in New York and London. So that's part of it. Now, on the pricing side of it, you know, there is a rocket-and-feather element there. The reality is is dealers and marketers have been losing money, and have had a really rough 110 days or so of the year. They have not been able to price on the increases as rapidly as they've occurred. On the way down, that is when the retailers can make a little bit of money to make up for the damages that were incurred when we have these hellacious price spikes. So there is a rocket and feather atmosphere to it.
CONAN: And that's, of course, the prices go up like a rocket and then down slowly like a feather.
Mr. KLOZA: Right.
CONAN: And Eric Schreiber, does that, does that compute for your business there?
Mr. SCHREIBER: Absolutely. I mean, it is a daily occurrence where we get price changes, and it's gone to where there's no change, to somedays it's gone up 12 cents to us, to down eight cents. So it is a constant battle that, you know, you're waging to decide where you can go immediately on the street price without, you know, turning away customers, you know--not shocking them that, you know, that next morning, if it went up 12 cents, maybe you raise it slowly and get it to where they're comfortable, and then hopefully prices fall.
CONAN: All right, here's an e-mail question from Tony in Austin, Texas. “While you're on the subject of gas prices, could you answer this question? What's the reason and/or origin of the point nine cents at the end of every advertised gas price? Why doesn't--why don't we just round up to the next penny?
Mr. SCHREIBER: Well, that's…
Mr. KLOZA: That silly little remnant from many, many years ago, and there are some states that are looking to get rid of that point nine price. It's not something to spend too much time on, it's not too much to worry about, and it's a silly little remnant of something that really probably took hold in the ‘50s.
CONAN: And Eric Schreiber, let me ask you this, an e-mail question from James in South Bend. “How much flexibility does the local gas station get in pricing its product? Would eliminating zone pricing help to bring about some greater competition into some markets, and are you able to profit from higher gas prices just like Exxon, BP, and Shell are doing?”
Mr. SCHREIBER: We are, you know, our pricing's dictated to us through what Chevron, Texaco, and I'm sure any other independent that's affiliated with another brand--what they set the price at to us. There's a wholesale price that comes out daily, and we have no variance from that. We must go off that price, and I don't know how zone pricing would work. It's just one of those things where we're handcuffed to where that is the price, we're stuck under an agreement, and we live with that daily.
CONAN: And Eric, let me ask you one more thing before we let you go, and that is, are your customers angry when they see prices over $3 a gallon?
Mr. SCHREIBER: I wouldn't use the word angry. I think that, you know, they're confused at times. We have not actually had that many complaints. I think the customers are getting more and more used to the higher gas prices. I heard earlier, a caller call in and mention that, you know, other countries are paying a lot more, and I think people are realizing we still have it very good in the United States. It would be great if we could go back to $1.50 a gallon price, because I'm going to make the same 10 cents profit either way. But the perception to the consumer is that much better, and people are driving more and it fuels my volume.
CONAN: Well, Eric Schreiber, we'll let you get back to work. Thanks for taking time to speak with us today.
Mr. SCHREIBER: I appreciate it, thank you, Neal.
CONAN: Eric Schreiber owns the Oasis Main Street Market and Texaco in West Palm Beach, Florida, and he joined us from his office there.
And you're listening to TALK OF THE NATION from NPR News.
And let's see if we can get another caller on the line. This is Ron. Ron calling from South Bend, Indiana.
RON (Caller): Hi. My question is in regards to the taxes that we pay on gas. Is it a set amount per gallon or is it a percentage, like other sales taxes? And if it is a percentage, does that mean that our elected officials are going to get addicted to the higher gas prices, and…
CONAN: The higher revenues from gas taxes, yeah. Tom Kloza?
Mr. KLOZA: Well, you know, we have the set federal tax, which is 18 cents and some change, and state taxes which may change once every couple of years or so. And there are a number of states--California, I think Chicago might do this, Pennsylvania--that have percentage sales taxes on top of them. So yeah, when prices go up, some of those states that collect sales tax on gasoline are the beneficiaries. Most states do not collect the sales tax on gasoline. They have their own state excise tax.
RON: Okay, thank you.
CONAN: Thanks, Ron.
Leonard writes this e-mail question. How much is the cost of ethanol per gallon? Does ethanol addition increase or decrease the cost per gallon of gasoline?
Mr. KLOZA: Right now, it's an absolute push. But let me give you a couple of economic statements here. It costs about $1.15 per gallon to make ethanol from corn, now, throughout the Midwestern states that make it. It is selling for about $2.75 a gallon. So there is tremendous profit in making ethanol and delivering it to market. It generally gets priced about 50 cents, or 51 cents above the price of gasoline, which just so happens to be the amount that one gets in terms of a federal subsidy when you blend it at a 10 percent blend.
It is very profitable, it is probably a little bit of a problem this year, and it's more of a logistical problem than it is adding to the price of gasoline. Next year, I suspect that we will have an awful lot more ethanol. Simple economics dictate that if you can make something for $1.15 and sell it for about two and a half times that much, you are going to get a lot of production, particularly when those sort of plants are green-lighted by regulators and legislatures across the country.
So I think it will be a good thing for the country next year. I think it's part of the problem this year. But I think we need to get away from, you know, some of the polemics between the oil industry and the agricultural industry, and some of the exchanges of blame that they've been playing on one another.
CONAN: And see if we can squeeze in this e-mail from Andrea in Rochester, Minnesota. “My husband and I have a small landscape company. We have two one-ton trucks, which we absolutely must have in order to run our business. Your guests say we have to suck it up, buy smaller vehicles. Well, what are my husband and I to do? We can't haul worker's machines and materials in a Toyota Prius. Yes, we are able to write off a small amount of gas expense on our taxes, but like it or not, these high prices are killing our profit margin.”
She's certainly not alone.
Mr. KLOZA: No, and that's really one of the problems here, is that an awful lot of people that are doing well and driving their, you know, their large Range Rovers and whatever, say, you know, as a measure of personal disposable income, it's not a big problem. But the people in the margins of society, the people that are really hurt by this, that are on fixed incomes and whatever, they can't drive necessarily less.
There aren't a lot of people who can make those choices. They can drive a little bit less, they can get some more responsible vehicles. And ultimately, they hold the fate of the people on the margins in their hands. And, you know, that's part of really the American way, to act on behalf of those a little bit less fortunate than yourselves, and it's why, you know, I think it's excessive behavior to drive some of these vehicles that result in Detroit or Tokyo making a lot of money, but at the expense of people in the margins.
CONAN: We're going to take a couple of more questions for Tom Kloza on why gas costs as much as it does today.
And when we come back from the break, we'll also be talking with historian John Lucas about the strange relationship between Adolph Hitler and Joseph Stalin during World War II.
It's the TALK OF THE NATION after the news.
CONAN: This is TALK OF THE NATION. I'm Neal Conan, in Washington. Here are the headlines on some of the stories we're following here today at NPR News.
A senate committee has called for the Federal Emergency Management Agency to be scrapped and rebuilt from the ground up. The recommendation comes as a senate, from a senate inquiry, which concluded that top officials from New Orleans to Washington failed to adequately prepare for and respond to Hurricane Katrina.
And the trial of Enron founder, Kenneth Lay continues today in Houston, Texas. A federal prosecutor accused Lay of withholding key financial data from analysts.
Details on those stories, and, of course, much more later today on ALL THINGS CONSIDERED from NPR News.
Tomorrow, it's Science Friday. Ira Flatow will be here with a look at the environmental and health risks of nanotechnology. Plus a conversation with Nobel Laureate George Olah about a methanol-based economy. That's tomorrow on TALK OF THE NATION Science Friday.
In a few minutes, we'll be talking with historian John Lucas about the relationship between Adolph Hitler and Joseph Stalin. June, 1941 is his new book. But first, do we have a couple of more questions for Tom Kloza, also known as Pump Daddy, the chief oil analyst for Oil Price Information Service, an independent publication that covers wholesale gas prices.
And here's an e-mail question from Gana(ph). “I've just tuned into the show, and wonder if anyone's discussed the impact of the war in Iraq on fuel prices. Doesn't the increased demand for fuel for military operations the world over have an effect on our gas prices?”
And I guess I should add to that, of course, Iraq is a good deal less of a major oil exporter than it used to be.
Mr. KLOZA: Yeah, and Iraq falls into the sort of category there of geopolitical risks, and the various calamities that the market is anticipated recently. And you're always going to have those risks. Iraq, Nigeria, Iran, Venezuela, they'll be out there probably for the rest of the decade.
Again, I would suggest that this market's reaction and this rally had more to do with the elements of crowd behavior and hysteria than it did with any real elements there in world crude oil prices. Crude oil stocks are actually very high, and, you know, there's never a true comfort range, but they're more comfortable than they've been in some time.
One of the problems you have here is that this is the money manager market, and money has been flowing into oil as the ultimate inflation risk. Well, guess what? That pushes up the price of oil, people worry about inflation more, more money flows into oil. We reached a period last Friday where 82 percent of all of the folks that play the oil futures market were bullish. That, in and of itself, was a tip-off that this market had long past moved from reaction to overreaction. And the good news for your audience, I can tell you right now, is that since last Thursday, gasoline wholesale prices have dropped by about 25 to 28 cents in the wholesale market.
So I think, and I, you know, I would qualify this, you know, if there's a calamity here in the next 30 days, but I think that we have seen the preseason rally run its course.
CONAN: One last e-mail. This is from Bob Cowander(ph) in Newark, Ohio. “Discussion is interesting, but what has changed since last spring? We keep hearing there's competitive demand from India and China. Has there been a major surge in the industry of India and China in the past 12 months? I'd really like to know what was discussed and decided in Mr. Chaney's energy meetings.
He's referring to discussions with energy officials that went into the design of the energy bill that Congress passed, I think, last year. That was at the beginning of the Bush/Cheney administration.
“People,” he adds, “don't trust the explanation, because we're constantly inundated with spin and fabrications. We don't trust oil companies or the government because they have a history of manipulation and dishonesty.”
Mr. KLOZA: Right. Nothing has really changed with the exception of, prices have a high tide every spring, and those high tides have been much more severe going forward in the last five years measured against 10 or 15 or 20 years.
But there are elements that are out there every spring that send prices higher. On average, about 55 percent. This one cleared that average, and we saw prices go up by about 60 percent or so. It seems much more pronounced, because we moved up from such a higher post-season bottom. You know, we bottomed on prices nationally for Thanksgiving weekend at about $2.12, and to go from $2.12 to $2.92 was an 80-cent increase. Measured against historical preseason rallies in the spring, it wasn't that much, but it happened so quickly and it was so dramatic that, once again, it got into the 24-hour news cycle and it inspired the wrath of the public.
CONAN: Tom Kloza, thanks very much. We appreciate your time and let you get back to your meeting, there.
Mr. KLOZA: Okay, take care.
CONAN: Tom Kloza is chief oil analyst for Oil Price Information Service. He joined us from San Antonio, Texas on the phone, where he's attending a gasoline conference.
We're going to go back to this subject and talk about proposals that might reduce the price of gasoline next week on TALK OF THE NATION, so stay tuned for that. Coming up, Hitler and Stalin.
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