a Force For Good? WASHINGTON (April 25, 2006) - The Energy Information Administration (EIA), an office of the U.S. Department of Energy (DOE), released its weekly report "This Week In Petroleum," with a focus on gasoline pricing. Retail gasoline prices have risen 28.5 cents per gallon over the past three weeks to a national average of just under $2.80 per gallon, an increase of 55 cents per gallon from one year ago. The EIA says that despite some stations listing prices more than $3, it remains confident in its forecast that prices won't average more than $3 for a month in the short term. The forecast is predicated on several assumptions: 1. There will be no major problems in U.S. refineries, pipelines or any part of the distribution chain. 2. There will be no additional oil production disruptions occurring from overseas suppliers. 3. There will be no change in current market conditions now and through the peak summer months. The EIA cited a number of reasons for the rise in gasoline over the past three weeks: * Lingering hurricane damage - A larger-than-normal amount of refinery capacity remains offline, reducing the production of gasoline. The EIA cites three Gulf Coast refineries that are only just now coming back online. Other refineries had stayed operating in the aftermath to pick up some of the slack, deferring scheduled fall maintenance until the current spring. The combination has resulted in a production shortfall from the Gulf Coast refineries of 457,000 barrels per day, at a time when gasoline demand is up slightly. Gasoline inventories have been drained by more than 20 million barrels over the past four weeks, despite large volumes of imported oil that awaits refining. The American Petroleum Institute affirmed the refining slowdown, noting that refinery capacity in March 2006 was only 87 percent of total refining capacity, and that as of April 19, this month was even lower due to deferred maintenance being performed. * Rising crude oil prices - Crude oil prices have risen to above $72 per barrel during the past three week period. Some of this price rise stems from the aforementioned imports to replace depleted gasoline inventories; some comes from increased demand for inventory, as refiners seek to build inventory as a hedge against possible disruptions during the coming summer months. The two actions serve to drive up oil and subsequently gasoline prices in the short term, but are expected to help reduce and/or stabilize prices though the summer. * Transition from MTBE reformulated gasoline (RFG) to ethanol RFG - The conversion to ethanol blends has not gone as smoothly as federal authorities had desired. The refining shortfalls have led to ethanol shortfalls and a temporary lack of deliveries to some major cities; consequently, these shortfalls have led to upwards price pressure. As the transition problems are rectified, this causal agent will be eliminated as a price factor, says EIA.
EIA issued the report when oil prices were at $72 per barrel, and it acknowledged that the $3 per gallon question is on many people's minds. Since the report's release last week, oil prices surged upwards again, to a high of $75.35 (U.S.), before falling back slightly. EIA maintains that the significant increases in gasoline production, as refineries return to close to full-scale production over the next few weeks should stem the rise in gasoline prices and may, actually, cause them to decline somewhat. Whether the sustained average U.S. price of regular gasoline reaches or exceeds $3 per gallon later this year, the group stated, depends on whether the current market situation worsens.
Rising prices fuel fears The most recent full-year statistics from the DOE are from 2004 - a year that the Agency reports that 47 percent of all petroleum was used as gasoline and that prices were well below today's level. Demand for and prices of gasoline have both risen since 2004, squeezing the disposable income that Americans take home after taxes. A number of polls and media reports show that American consumers are feeling the economic pinch of rising gasoline prices - not just in the past three weeks, but over the past two years especially. Consumers also fear the years ahead. The impact isn't just felt at the pump. The rising gasoline prices have rippled through every sector of the economy, affecting any commodity distributed using fuel products - food, clothing, household goods, medical supplies and more. President Bush, in a speech on April 25, addressed many of the issues surrounding energy, oil imports and gasoline prices. He reiterated that with 60 percent of the country's energy supply coming from foreign nations, America's energy supply is not only a matter of national security, but also a matter of economic security: "Gasoline price increases are like a hidden tax on the working people. They're like a tax on our farmers. They're like a tax on small businesses." He said that it is important to make sure that the American consumers are treated fairly at the gas pump. To that end, he noted that the Federal Trade Commission (FTC) has been investigating whether price of gasoline has been unfairly manipulated in any way. He added, "I'm also directing the Department of Justice to work with the FTC and the Energy Department to conduct inquiries into illegal manipulation or cheating related to the current gasoline prices." The president also called on energy companies to reinvest some of their profits in alternative, renewable energy alternatives that will bring to America the security its people need.
Consequently, families are considering more efficient vehicles (hybrids and compacts), alternate fuels (ethanol, diesel and biodiesel), considering other ways of commuting (car pooling or urban transit), downsizing or deferring planned major expenditures, and putting off maintenance for homes, vehicles and recreational vehicles. For example, AAA has reported that many families are downsizing their summer vacation plans to something more affordable: traveling shorter distances, shortening the length of trips and tending to stay in one destination rather than tour as much.
This consumer behavior is not without precedent. When gasoline prices spiked a year ago and then fell from the peak $3.50 per gallon price back to the $2.50 per gallon range, the National Retail Federation (NRF) conducted a survey to assess consumers' spending habits. The survey reported that two-thirds of people responding believed that fluctuating gas prices impacted their spending habits, both during the spiking and for some time after, even when prices had fallen back. "While shoppers seem to be getting over the initial sticker shock, gas prices have taken a long-term toll on consumers, many of whom have had to adjust their spending to compensate for the increases," said Tracy Mullin, NRF president.
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(Source: Pew Research Center for the People & the Press, Feb 2006) In summary, rising gasoline prices demonstrate three certainties: * Gasoline prices will go up over time, for oil is a depleting resource, and there will be disruptions in that supply - domestic or foreign. * Consumers will feel the pinch and adjust spending accordingly. * With more frequent experiences with high pump prices, public attitudes will shift. The pain at the pump, if nothing else, could well motivate socially conscious behaviors and provide the real fuel and push towards a hydrogen economy. (Sources: White House, DOE, Pew Research Center for the People and Press, National Retail Federation)
