Experts say end to higher gasoline prices not in sight
Gasoline shortages, high prices at the pump, out-of-gas vehicles abandoned alongside the road. Analysts say it’s unlikely that such scenarios as these that occurred in the 1970s will be repeated today if the U.S. invades Iraq.
Still, gasoline prices continue to climb because of a worldwide supply-and-demand situation for crude oil. Costs to consumers have risen more than 40 cents a gallon over the same time last year, and consumers worry that war may pare crude oil and, thus, gasoline supplies.
Just this week, per-gallon prices for regular-grade gasoline at a self-serve pump rose 7 cents overnight.
Frank Rhodes Jr., owner of Freedom Fuel Service in Uniontown, explained the suppliers at the regional terminals regulate such price hikes.
“It goes up or down, depending on what the crude oil price is at that time. We get daily price changes, and sometimes we can have more than one price change in the same day,” he said.
Rhodes said the terminals alert the wholesale distributors of the changes they will have to pay for replacement stocks of gasoline.
“We have no control over it. It used to be the changes would be in tenths of a cent. Now, it’s 3, 4, 5 or more cents at a time,” he said.
So, if the market price for a barrel of crude oil rises, gasoline prices go up also.
“They usually tell us about 7 or 8 o’clock at night what the price change will be, but you can have mid-day price changes, as well, if things really get stirred up,” Rhodes said.
And, there is no limit to the hike.
“I have seen the price move 8 to 10 cents in one night,” he said.
Part of the cost of a gallon of gasoline is also government-imposed.
Bevi Norris of East Central AAA (Automobile Association of America) said each gallon of fuel sold in Pennsylvania carries a 45.3-cent tax. Broken down, the taxes are as follows: 18.4 cents in federal tax, 12 cents in state excise tax, 13.9 cents in oil company franchise taxes on liquid fuels and 1 cent for underground storage tanks.
It all adds up.
“What we had you down for (Uniontown/Fayette County) was an average of $1.64 cents a gallon,” Norris said. That was on Wednesday, when the AAA releases its weekly fuel gauge survey. It was $1.22 a gallon the same time a year ago.
But on Tuesday, the average price was nearer to $1.58 a gallon.
“While there is no reason to think the United States will undergo gasoline shortages, a sudden run on gas pumps could create localized outages that need not exist,” Norris added. “Surprisingly, over the past week, prices for gasoline in western Pennsylvania have remained relatively the same. From March 4, they increased (on average) only a penny.”
In cases when prices rise, demand may slacken; however, Norris said she hasn’t heard of any drop in sales yet.
As for what prices will do in the future, Norris warned they always rise when warm weather hits.
“Normally, when we switch over to the summer blends of gasoline, the prices do increase a little bit. Usually, that’s in the spring, but that is still one more (increase) looming on the horizon.”
According to the American Petroleum Institute, the cost of gasoline – along with diesel, heating oil and other petroleum products – has gone up primarily because refiners are paying considerably more for crude oil, the principal cost-component of a gallon of gasoline.
The second biggest cost-component is the gasoline tax. Federal, state, local and other taxes add an average of 42 cents to the price of a gallon of gasoline, the institute said.
The United States consumes more than 370 million gallons of gasoline a day, up by 2.4 percent from last year’s levels, according to the institute, and consumes more than 37 percent of world gasoline production.
“We use about 20 million barrels of oil per day. Almost 60 percent of that oil is imported. (The top U.S. supplier is Canada, averaging 1.5 million barrels per day, followed by Saudi Arabia, Mexico, Venezuela, the UK and Nigeria.)
“Today, a barrel of crude oil is selling at more that $36. At this time last year, a barrel of crude cost $18,” according to a release from the institute.
Since late November, crude oil prices have risen 29 cents a gallon, and gasoline prices have increased 29 cents a gallon, according to the institute.
“U.S. gasoline prices adjusted for inflation are still lower than in 1981. In 1981, motorists paid $1.35 per gallon for gasoline.
“Due to inflation, this is equivalent to spending $2.70 a gallon today,” according to the institute release.
But, the institute added, increased gasoline prices have generated calls for the Federal Trade Commission (FTC) to investigate.
“Six months ago, the FTC began monitoring daily retail gasoline prices, as well as wholesale prices, nationwide.
“The purpose is to go ‘beyond law enforcement to analyze in a more comprehensive way the central factors that affect the level and volatility of refined petroleum products throughout the U.S.'”
The FTC already has investigated the industry and found no evidence of any wrongdoing, the institute reported.
Oil- and gas-industry profit margins have been in line with those of other industries. During 2002, the profit margins of the oil industry averaged 2.3 percent, compared to an average of 4.0 percent for all U.S. industry, according to Business Week’s Corporate Scoreboard.
And, over the last five years, the oil industry’s net profit was 4.7 percent, compared to an average for all industry of 5.2 percent.
“While a conflict with Iraq could interrupt some crude oil supplies, potentially lifting oil prices worldwide, higher prices could, in turn, spur increased crude-oil production from nations with unused or surplus production capacity.
Also, nations with strategic oil reserves could replace some lost supplies by releasing crude oil from their strategic reserves.
Replacing lost supplies would tend to moderate price volatility,” according to the institute.