Why Are Gas Prices So High?

Autos & TrucksMaintenance

  • Author Matthew Paolini
  • Published July 2, 2007
  • Word count 512

Fuel prices have been steadily climbing for the past few months - though the costs nationwide have dropped slightly in the past week -- and are threatening to become the most important issue of the summer. The nationwide average price for a gallon of unleaded regular gasoline now stands at just above 3 dollars, up a full 25 cents from the same time in 2006.

A good number of consumers are heaping abuse on the 'Big Oil' companies, who are reaping huge profits from the high gas prices. However, in an industry as complex as the oil/gas business it is difficult to figure out exactly what the causative factors are. Analysts have run the gamut, from blasting oil companies, to pointedly noting the lack of domestic oil refining capacity, to reluctantly stating that the supply of oil may be decreasing globally -- although those who believe the latter are certainly in the minority at present.

Fuel consumers all around the country are justifiably vexed about the rising prices. Recently in Texas the average price of retail gasoline rose for a 14th straight week. A weekly AAA-Texas gas price survey showed uneven price trends, with prices reaching record highs in some areas but falling in others. Auto club spokeswoman Rose Rougeau said that Texas cities Amarillo and El Paso recently set new record highs, while prices edged lower in eight other cities. Rougeau posited that strong consumer demand, lessened domestic output because of refinery problems and lower gas imports apparently are all working to keep prices high.

In nearby Arizona, gas prices also recently rose for approximately 14 week in a row. According to an AAA-Arizona survey, the statewide average for a gallon of regular gas was 3 dollars and 9 cents per gallon. That's one cent below last summer's highest price, and moving closer to the all-time record of 3 dollars and 13 cent per gallon set in Sept. 2005.

In relation to the theories of why fuel expenses keep going higher, the dearth of oil refining capacity seems to be the most popular response. Some industry commentators blame Congress, saying that the legislators are preoccupied with forcing auto companies to meet unreachable targets for fuel efficiency, while failing to address the oil refining issue. On May 8, the Senate Commerce Committee voted to increase fuel economy standards to an average of 35 miles per gallon in 2020 for cars and light trucks, with standards rising by 4 percent annually until 2030.

According to some industry observers, Congress has depressed the construction of new oil refining capacity through proposed legislation that penalizes refiners when prices rise, that imposes onerous and costly permit requirements for construction of new refineries and augmenting existing sites, and that allows for an increase in tort risk.

Building more refineries would certainly alleviate the gasoline supply problem, but because they have the capacity to be so damaging to the surrounding environment, it is very difficult to find a community that will support a new refinery. Under the logic of 'NIMBY' (Not In My Backyard), consumers like to get gas at low prices, but they don't want a refinery close to home.

Matthew Paolini is a consultant with Citybook.com for the St. Louis, MO business Yellow Pages division.

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