What’s to Blame for Gas Cost? Well, Just About Everything
After enjoying steady, relatively low gasoline prices for five years, American motorists are finding themselves in shock at their neighborhood filling stations. Prices have rocketed across the country, bringing to mind the oil crises of the 1970s, and nowhere are costs and tempers higher than in California, where the economy and the psyche are inextricably linked to the automobile.
Within a few weeks motorists have seen gasoline costs leap by more than 25 cents a gallon, in many areas to above $1.50. One Santa Barbara gas station gave new meaning to the term “topping off” by socking customers $2.23 a gallon for full service. Worse could be down the road.
Why, you ask? The oil companies have some answers, though you may not like them. The latest hikes come on the eve of the summer vacation driving season. More demand combined with shortfalls in production translates to higher prices at the pump, we are told. Those prices could last through Labor Day, if not beyond.
The drop in domestic oil production--from 7.6 million barrels a day last year to about 7.3 million now--has many analysts pointing an accusatory finger at the oil companies. At a meeting last week of the state Air Resources Board, executives representing Arco, Chevron, Exxon, Mobil, Texaco and Unocal found a hostile audience when they tried to justify cost hikes. Sensing the mood, the executives backed away from earlier suggestions that the cost of producing new cleaner-burning gasoline in California was primarily responsible. Other factors that have been mentioned include Middle East politics, tougher environmental laws, new inventory requirements and a cold Eastern winter that sent demand for heating oil soaring. Meanwhile, more motorists are buying gas-guzzling sport utility vehicles and speed limits have risen.
But the largest element in California--we should not be surprised--is the so-called refiners’ margin, says state Energy Commission Chairman Charles R. Imbrecht. The margin, the difference between the wholesale price of gasoline and the price of the crude oil it’s made from, has hit 46.4 cents a gallon, a 25.1-cent increase since January. In contrast, the more expensive cleaner-burning fuel that all stations in California must begin selling by June 1 is costing consumers only 5 to 8 cents more a gallon.
Like all commodities, oil and its byproduct gasoline are subject to supply and demand. This year has provided prime examples of market volatility.
* A colder winter in the United States and Europe delayed a shift to gasoline production as producers kept filling orders for home heating oil. Gasoline inventories suffered as a consequence, and now supplies are tight.
* Crude oil prices rose when Iraq rejected the terms of a U.N. offer to lift the Gulf War oil embargo. Acceptance would have increased world supplies. And the possibility that Iraq may yet change its mind still has the market nervous.
* Different grades of gasoline--oxygenated, reformulated and conventional--put more demands on refining and storage. Producers are watching inventories closely to keep them low.
Meanwhile, the United States, particularly California, continues to have a voracious vehicular appetite. We are a nation breeding a dependency. And that’s a reality whatever the price of a gallon of gas.
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Gas: Going Up
The average retail price of a gallon of self- serve regular unleaded gasoline in California:
Jan: 16: $1.22
Feb: 20: 1.23
March 26: 1.30
April 16: 1.40
April 24: 1.47
Sources: AAA, Computer Petroleum Corp.
