Americans Watch Gasoline Prices Rise

Topics:  Gasoline

Ted Landphair
Washington, D.C.
June 22, 2004

Audio Version  761KB  RealPlayer

Over America's Fourth of July Independence Day holiday weekend, millions of drivers will hit the highway, grumbling even louder than usual about gasoline prices that crossed the $2/gallon threshold a couple of months ago. That's only about $.53 a liter. Drivers elsewhere in the world would GLADLY pay that, but Americans spoiled by low gas prices don't like it one bit. Why, they ask, did prices ratchet up by ten cents a gallon for week after week and settle above two dollars in many parts of the country? And what's ahead? VOA's Ted Landphair has some information.

Americans who can only guesstimate how much they paid for their last jug of milk can tell you to the penny the cost of a gallon of gas. As Daniel Yergin wrote recently in the New York Times, no price in America is more visible, indeed inescapable.

Not since the Arab oil embargo and the Iranian revolution in the 1970s have gasoline prices been this high. In a recent Gallup survey, the largest percentage of respondents said they believe the chief culprit in the recent price spike is profiteering by big oil companies. And our own, tiny survey confirms it.

Man: "They're in cahoots with [scheming with] OPEC."

Woman: "I think they know they can get away with charging more. We have to have our gasoline. We're going to pay whatever they charge and they see that prices have risen for whatever reason, so they're gonna tack on a little bit for themselves at the same time."

Landphair: "Does that make you angry?

Woman: "Well, yeah!!"

Second Man: "It's price-fixing. Gouging the public."

Landphair: "So you don't think it's supply and terrorism threats in the Middle East?"

Second Man: "Nah. That has nothin' to do with it."

A recent U.S. General Accounting Office study did find that mergers of huge oil companies and their gobbling-up of small, generic brands have added a few cents to the price at the pump. Without off-brand stations across the street, pumping cheaper gas, there's one less reason for name-brand stations to keep prices low. But analyst John Kingston at Platts, a global commodity newsletter, scoffs at the idea that price gouging can be blamed for the surge in gasoline prices.

"The price of gasoline is really set on the world stage," he said. "There's 80 million barrels sloshing around through the world out there every day. Nobody can control that. I'm not going to say that what's been going on is not profitable, but the charge of profiteering makes it sound like there's no earthly reason why the price would be high, except that the sellers of it want it high. And I'm saying that's simply not something you can turn on and off."

One big reason oil companies have prospered of late and drivers are paying more Mr. Kingston says, is that states like California and Illinois require exotic gasoline formulations that reduce environmentally damaging emissions. Mr. Kingston adds that refining capacity has been shrinking as the big companies close refineries. But he says it's a waste of time to pressure OPEC to open the spigots, since oil-producing nations are already pumping out ninety-eight percent of what they can possibly produce.

"There's no doubt that we've had a significant ratcheting up of world demand. The Chinese have been a key reason for that. They've been in significantly high double-digit growth rates. It's definitely part of the landscape, a permanent part of the landscape."

Another reason often cited for the run-up in gasoline prices is rampant speculation on the oil futures market. Worried about possible terrorist attacks on Middle East oil supplies, and knowing that the Bush Administration has steadfastly refused to tap into strategic petroleum reserves to ease the supply pinch in the United States, speculators have bid up the price of crude oil. And that's worrisome to observers like James Hamilton at the University of California, San Diego, who has watched an oil-price shock precede four of the five U.S. recessions since World War Two.

"What in my opinion it does is to disrupt the pattern of spending by consumers and firms, " he noted. "One obvious example is car sales. When there's a lot of turbulence in energy prices, some people put off their car purchase or change their car purchases. American manufacturers, who historically have been producing the bigger, less gas-efficient vehicles, often get clobbered in terms of their sales."

Indeed, April, the latest reporting month, saw a sharp decline in demand for the biggest gas guzzlers. U.S. sales of Ford's Expedition, Chevrolet's Suburban, and the Hummer H-2 were down at least 20 percent from a year earlier.

And if some analysts are right, $.53/liter gas or even a disruption in oil supplies caused by terrorism could be the least of America's energy worries.

In a recent book, geologist Kenneth Defeyes predicts that global oil production will peak during this decade. And in his own book, called Out of Gas, California Institute of Technology professor David Goodstein says the world has already reached the apex of oil production and that oil output will decline forever.

"The real crisis will come when the supply starts to decrease and the demand goes on increasing. The end of the age of oil is imminent," he said.

Such dire predictions have been made in the past, only to be debunked by the discovery of vast deposits of oil in places like Alaska and Kazakhstan.

"The amount of oil that's thought to be in the entire Middle East, which is two-thirds of the world's supply, is 700 billion barrels. If we were to discover another 700 billion barrels, in other words, discover a brand new Middle East somewhere -- and this is physically impossible [as] there isn't enough unexplored land on earth for this to happen -- then the predictions of when the peak will occur would move ahead by about a decade."

If David Goldstein is wrong, and the world's oil supplies can somehow be sustained for the foreseeable future, other experts say the United States can do two things to moderate future gasoline price increases. It can build more refineries and it can agree on a single standard in the formulation of unleaded gas. With 60 percent of America's crude oil coming from abroad, however, such steps would make little difference if there were a disruption in the oil pipeline from Canada or in the never-ending flotilla of tankers from Mexico, Venezuela, Nigeria, Indonesia, and of course, the Middle East.