More than two-thirds of what you pay for every gallon of gasoline goes to the government and crude oil producers.
Why is self-serve regular $1.65 on this side of the street, $1.51 on the other?
| June 20 — CRUDE OIL PRICES, taxes, transportation costs, additives, pipeline problems, brands, even using a credit card and going to a company-owned station rather than an independent, all impact the price you pay at the pump. In the Midwest, the nation’s most expensive gasoline market this week, oil companies blamed the $2-a-gallon-plus prices on taxes and the cost of introducing new federally-required cleaner fuel this month. The price spike prompted the Federal Trade Commission to open a formal investigation into possible price gouging and collusion, and has led Indiana’s governor to suspend the state’s gasoline sales tax for 60 days. Drivers across the country are facing record prices as the heavily-trafficked summer vacation period approaches. According to the U.S. Energy Department, regular unleaded gas jumped 5 cents a gallon from last week to $1.681 a gallon — up a whopping 56 cents a gallon from the same time last year. “There is no cut-and-dry answer for the price increases,” says Paul Moreno of the Automobile Association of Northern California. Prices in the Bay Area — traditionally one of the most expensive regions in the country — have actually dropped by 9 cents a gallon from their peak of $1.84 a gallon in March, he notes. But figuring out what is exerting pressure on the pump in any given region at any given time is indeed a murky science, Moreno says. “Some rural areas may be closer to the source, the pipeline, so that may bring transportation costs down,” he says. Or cross a county line and prices can jump. “In Nevada, local option fees vary from county to county. And in some areas of California, sales tax varies from county to county.” MIDWEST UNDER A MICROSCOPE Pipeline problems in the last several months have been cited by oil companies as curtailing supplies and forcing up gasoline prices across the Midwest region. In March, a leak in the 1,400-mile Explorer pipeline, which supplies gasoline to St. Louis and Chicago, led to a five-day shut down that pressured supplies. Two weeks ago, another pipeline in Michigan sprang a leak and was out of service for nine days. Gasoline prices in the Detroit area soared to $2 a gallon afterward. Industry experts say the pipeline shutdowns are particularly disruptive because companies have adopted policies of keeping only small inventories on hand as a means of saving on storage costs. As a result, there is little in the way of a cushion if pipelines fail, situations that Washington state and California felt in the last year as well. What’s more, oil companies have increasingly pointed to taxes as a reason for extraordinary gasoline prices in the Midwest, though an eastern state — Connecticut — leads the nation in state gasoline taxes. Still, the American Petroleum Institute — which represents the oil and gas industry — pulls out an impressive array of numbers to support Big Oil’s claims. The API says that 63.5 cents of the $1.60 per gallon June 1 base price of a gallon of gasoline in Chicago went to taxes of one sort or another. The Institute claims, for example, that 19.3 cents went to an Illinois motor fuel tax; 18.4 cents to a Federal excise tax; 6 cents to a Cook County gas tax; 5 cents to a Chicago city gas tax; and the rest to sundry other state and local taxes. DUELING TEXACOS Taxes aside, some of the price differentials make little sense even to gas station owners themselves. Across a busy intersection in Bellevue, Wash., Bill Capron, an independent owner-operator of Lake Hills Texaco, was selling self-serve regular for $1.61 a gallon on Tuesday. On the other side of the street, a competing dealer-owned Texaco station was charging 4 cents a gallon more for the same octane. And less than a mile down the road, an Arco station was charging $1.51. “Honestly, it makes no sense to me,” Capron said, reserving some scorn for the more than 40 cents a gallon that goes into the government’s tax coffers. “If I told you that your tax on groceries was that high, you’d probably take a Louisville slugger down to the legislature.” As for his Texaco rival across the street, Capron suggested that the financial structure of the two businesses leads to lower prices by one or the other at any given time during the month. Capron, as an independent, pays a mortgage for the property, purchases his Texaco gas from a third-party supplier, offers auto repair and has no staff on duty after 11 p.m.. His rival pays a maintenance fee to Texaco, buys his gas directly from the company, runs a Texaco convenience store and keeps on a late night staff. The Arco station manages to undercut its rivals on busy 148th Street by not accepting credit cards — which companies pay a commission on — and by using an ethanol mixture, which is partially subsidized and thus less expensive. Nevertheless, Capron and his rivals are dependent on the whims of foreign oil producers many thousands of miles away, which produce about 57 percent of the crude oil that the United States consumes. IS OPEC TO BLAME? On Wednesday, the 11-member Organization of Petroleum Exporting Countries — which in March provided about 47 percent of total imports to the United States — agreed at a meeting in Vienna to raise its oil output above the quota it set in March. The cartel will increase daily production by 710,000 barrels. But with oil prices now at 3 1/2-month highs, the production increase is not expected to make much of a dent in gasoline prices very soon. Experts say that the low oil inventories have indeed been a problem, and that refineries appear to have been slow to rev up production in anticipation of lower world oil prices that have not materialized. But they say the inventories do not completely explain the surge in gasoline prices, particularly in the Midwest. The oil industry blames much of the price spikes this summer on a requirement for a cleaner-burning blend of reformulated gasoline in areas with severe summer smog. They say the costs of making the gasoline — about a third of all gasoline sold — is higher than anticipated because of blending problems. And some refineries have not retooled to make the new blend, adding to the supply problems. The cleaner burning gasoline is costing consumers 5 cents a gallon more on average than conventional gasoline, although the gap is four times that in the Midwest, mostly Chicago, Milwaukee and St. Louis, where prices have jumped 30 cents to 50 cents a gallon. |