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New Gas Price Record, New Demand for Congressional Probe

Average Price Climbing Towards $4

By Joe Benton
ConsumerAffairs.com

May 16, 2007
Gasoline prices set a new record for the fourth consecutive day rising 1.6 cents overnight to $3.10, according to AAA.

With additional records probably on the way, the Consumer Federation of America is asking Congress to use its antitrust authority and investigate whether the refining industry has become too monopolistic.

"It is time for Congress and the administration to do their part to help alleviate the pain consumers are feeling at the pump," said Mark Cooper, Director of Research for the Federation.

The group wants the federal government to provide greater oversight over the oil industry and create strategic refinery and product reserves as well as enact policies that promote reduced oil consumption.

"They have no interest in building spare capacity because that would undermine their pricing power," Cooper said.

Earlier, the American Automobile Association said lawmakers should look at the link between these supply shortages and rising oil company profits.

Any other industry that posted the record earnings the oil industry has enjoyed would attract new businesses, the Federation claimed.

The Federation charged that the domestic refining industry has continued to run existing facilities at full throttle and thus cause many of the accidents and outages the nation has experienced over the last few months.

"This is just mismanagement," Cooper said. "But they get away with it because there is no competitive discipline."

The Federation claims that the refining industry has not attempted to build new refineries and has instead closed 50 since the 1990s rather than make investments to make them comply with pollution laws. "They would rather not try and blame their neighbors."

On the Defensive

Big Oil is on the defensive, denying the accusations that refining capacity, mismanagement and a lack of competition are the reasons behind this spring's record gasoline prices.

American Petroleum Institute economist John Felmy said that whenever the industry tries to add refining capacity, it faces opposition from surrounding communities.

The oil industry insists that while a new refinery hasn't been built in decades, overall refining capacity has increased at a rate that's the equivalent of adding one refinery a year.

API claimed the amount of gasoline being produced is increasing.

The API also insisted that several factors are contributing to high gas prices including higher crude prices since the start of the year attributed to tensions with Iran and violence in Nigeria. Gasoline imports have declined as well.

A Little Good News

While the argument over who is to blame for high gasoline prices resonated through Congress, some moderately good news for consumers came for the Energy Information Agency.

The EIA reported that crude oil supplies rose higher by 1 million barrels last week to 342.2 million barrels. Gasoline stocks increased by 1.7 million barrels to 195.2 million barrels, above analyst expectations of a 900,000 barrel gain.

Before the recent run-up of record prices began, the highest price ever recorded in the AAA Fuel Gauge survey was $3.057 set September 4 and 5, 2005, after Hurricane Katrina disrupted refinery operations and pipelines along the Gulf Coast.

The most expensive gasoline on sale in the country now is in San, Mateo, California at $4.03 a gallon. The cheapest gallon can be found in Spartanburg, South Carolina for $2.64.

California leads the country with the highest average gasoline price. A gallon of self-serve unleaded costs an average of $3.47 in the state. South Carolina has the lowest average price but it is also creeping toward the $3 mark with a gallon of regular selling for $2.85 in the state.

Thirty-three states and the District of Columbia now have average prices at or above $3 a gallon with Kentucky, Florida and Maryland the latest states to join the list.

Consumers are feeling the gas price bite as the average U.S. household is spending $1,000 more per year on gasoline than it did five years ago, according to several consumer groups.

Rural households have been hardest hit because they spend about 20 percent more on gas than urban residents, according to Labor Department figures.

The American Automobile Association says lawmakers should look at the link between these supply shortages and rising oil company profits.

Gasoline prices hit record levels for the third consecutive day yesterday, striking $3.09, according to the AAA Fuel Gauge Report.

Prices are now above $3 in 31 states and the District of Columbia generating fears that $4 a gallon gasoline could be in the near future.

“We are concerned about the number and frequency of refinery outages this year in light of the large profits the industry has been reporting," said AAA Public Affairs Director Geoff Sundstrom, testifying before the Senate Committee on Energy and Natural Resources.

Sundstrom said the industry should be doing a better job of projecting and meeting demand. He says there is no apparent reason refiners should suddenly be having a problem completing this task.

Lawmakers convened the hearing to ask energy experts to explain why a number of gasoline refineries have suspended operations, at a time when they are normally gearing up for increased demand during the summer driving season. The bottleneck in supply has pushed pump prices to a record high.

Industry representatives in the west, where the supply problems have been most acute, say the real problem is refining capacity. Joe Sparano, president of the Western States Petroleum Association, told lawmakers more refining capacity is needed to meet rising demand.

A spokesman for the California Energy Commission blamed some of the problem on the annual switchover from winter gasoline to summer fuel, which is formulated differently. Motorists, however, were not swayed.

“Consumers have a disdain for exorbitant gasoline prices,” said Martha M. Meade, AAA Mid-Atlantic’s manager of public and government affairs. “This is the worst possible news at the worst possible time."

Meade said there is no real justification for the recent spike in prices, unlike last year's jump which was caused by Hurricane Katrina.

No Relief

The government's top energy forecaster told Congress that there will be no relief soon from the record high prices. The U.S. Energy Information Administration continues to blame strong consumer demand and dwindling stockpiles because of refinery breakdowns and slow imports for the skyrocketing prices.

The government warns that retail prices will climb higher as the summer vacation season continues.

EIA head Guy Caruso told Congress that there is still some wholesale price run-up that has not been passed along to consumers. Caruso declined to speculate how much higher gasoline prices will go.

"With refinery production expected to improve during the rest of May and import volumes increasing over the last few weeks, gasoline markets may ease somewhat, causing gasoline prices to recede from their current high levels," Caruso told members of the Senate Energy and Commerce committee.

Nevertheless, Caruso warned that the EIA expects gasoline markets to remain "fairly tight" this summer.

About 800,000 barrels per day in U.S. crude oil refining capacity is currently offline, which translates into about 400,000 barrels a day of lost gasoline production, according to the EIA. "It is an unusually high amount," EIA analyst Joanne Shores said.

AAA spokesman Geoff Sundstrom told the committee that his organization finds it "troubling" that the U.S is not able to supply enough gasoline to meet domestic demand.

Americans should be able to expect that those who refine oil into gasoline do a better job of anticipating demand growth, plan to meet that growth, and then make the necessary investments in plants, equipment and labor to provide the fuel at a cost that has some semblance of stability," Sundstrom said.

Senator Jeff Bingaman, the Democrat who chairs the energy panel, acknowledged that the U.S. economy remains “vulnerable to oil and gasoline supply disruptions and associated price increases."

The ranking Republican on the committee, Senator Pete Domenici, said there was no "silver bullet" that would slow the rise in gasoline prices this summer.

Prices High Everywhere

Prices are now above $3 in 31 states and experts predict more increases to come as consumers hit the road for vacations and other summer travel.

Mid-grade gasoline is selling for a national average of $3.26 and premium sells for $3.37.

The cheapest regular self-serve gasoline in the country is found in Boiling Springs, South Carolina for $2.65 and the most expensive gallon is on sale in Needles, California for $3.99.

One month ago regular sold for $2.79 and one year ago it sold for $2.88.

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