OPEC argues that taxation is a heavily underestimated driver of gasoline prices

Taxation in various major oil-consuming countries is a significantly more important factor in determining pump prices than is generally believed, OPEC Secretary General Haitham Al Ghais wrote in an article published on Tuesday.

“Most of what you pay at the pump is taxes” is the title of the piece published on OPEC’s website, in which the cartel boss reiterates his position that crude oil and petroleum products are vital to the normal functioning of the world, while we know it.

“The narrative we often hear is that every price increase increases fuel costs, bringing increased revenue for oil producers at the expense of consumers,” Al Ghais said.

“This narrative can lead to finger-pointing and pitting consumers against producers rather than recognizing that they are all stakeholders in the energy industry with legitimate needs and concerns.”

OPEC’s secretary-general shared an estimate that between 2019 and 2023, developed economies earned an average of about $1.915 trillion a year more (based on weighted average prices) from retail sales of petroleum products than OPEC member countries did from oil revenues.

According to him, this huge gap means that “for many consumers, taxation may be a more significant factor than the initial price of crude oil in feeling any pinch in the pocket at the pump.”

According to the US Energy Information Administration (EIA), last year, when the average retail price of a gallon of gasoline was $3.52, the price of crude oil accounted for 52.6% of the price at the pump, with federal and state taxes accounting for 14.4% of the price. In the decade to 2023, the price of crude oil accounted for a similar share – 52.3%, while federal and state taxes accounted for 17.3% of the price of a gallon of gasoline. During that time, the average price in the US was $2.83 per gallon.

On a final note, OPEC’s Al Ghais suggested that governments trying to tap into oil’s potential revenue generator, while at the same time trying to phase out oil, should consider how they will replace taxes on the oil products they would lose.

“Could similar levels of taxation be imposed on other energies?” he concluded.

By Tsvetana Paraskova for Oilprice.com

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