All This Talk about Windfall Profits reminds me of an article writen by Art Smith of JS Herold which appeared in World Energy Magazine a couple of years ago.

U.S. Gasoline Is Still a Great Bargain (Really!)

by Arthur L. Smith, CFA, Chairman and CEO
and Nicholas D. Cacchione, CFA, Senior Vice President
John S. Herold, Inc.

Perhaps because gasoline prices are displayed in foot-high numerals on every street corner in America, increases in gasoline prices provoke more consumer "sticker shock" rage than any other commodity. By way of comparison: the Atkins diet craze has led to sharply higher prices for protein foodstuffs. Where are the newscasts depicting irate consumer protests against alleged price gouging by bacon and egg producers?

With the average price of gasoline exceeding $2 per gallon (remember these days) across the United States, John S. Herold, Inc. has examined this price in the context of other consumer expenditures – the seventh time we’ve conducted such a study in the last 15 years. And for the seventh time, we’ve come to the same conclusion: Gasoline is still a great bargain, as the following four points attest, relative to other purchases in a typical consumer market basket.

1. Believe it or not, U.S. gasoline price increases have been moderate. While the costs of crude oil and gasoline have soared over the past year, both of these commodities are relatively inexpensive in historical terms. In fact, if the prices of gasoline and crude oil had kept pace with the general rate of inflation since the early 1980s, the price of these commodities would have been close to $4 per gallon and $90 per barrel. (These numbers seemed unachievable back then)  Since the early 1980s, the rate of nominal escalation in gasoline prices was about one-half the rate of inflation in postal rates, only one-third of that of airline fares and about one-eighth of the rate of college tuition increases.

2. For motorists, U.S. gasoline price escalation has been dwarfed by increases in maintenance and insurance. While gasoline out-of-pocket expenses are the most visible operating-cost component of running an automobile, fuel expenditures pale in comparison to the enormous run-up in maintenance and insurance costs over the past six years. The cost of gasoline/oil has increased about 9 percent to slightly more than 7 cents per mile driven, compared with a 46 percent increase in maintenance expenditures to 4 cents per mile driven, a 29 percent increase in tire costs to roughly 2 cents per mile driven and a 30 percent increase in aggregate insurance costs to $1,102 per year. Insurance costs have soared in recent years to now account for the largest share of total driving costs; at nearly 9 cents per mile, insurance costs exceeded gasoline expenditures last year. Only financing expenses have become less burdensome to the consumer over the recent past. Actually, gasoline costs in real terms as a percentage of all automobile operating expenses have trended downward – albeit irregularly – over the past 24 years since the peak in 1981 (see Figure 1).

3. U.S. gasoline is extremely cheap compared with European countries. Even with the recent run-up, domestic gasoline still costs less than half the amount it does in most European countries (see Figure 2). Why? Taxes. European countries have adopted political policies to discourage oil consumption and promote conservation.

How? With taxes equivalent to more than $2.50 per gallon. (That’s more than 100 percent of the total cost of today’s "outrageous" $2 per gallon U.S. retail price). Note that our great ally, the United Kingdom, has decided to highly tax petrol, although it is self-sufficient in both oil production and natural gas production.