High Gas Prices -- What is the Real Cause?
Fuel prices have been steadily climbing for the past few months - though the costs across the country 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 large portion of the gas-buying public 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 locate one determinative factor to point the finger at. Analysts have run the gamut, from lambasting industry executives, to decrying the lack of domestic oil refining capacity, to admitting that the supply of oil may be running short -- although those who assert the latter are distinctly in the minority at present.
Fuel consumers across the nation are justifiably concerned 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 that price trends were mixed, with prices reaching record highs in some areas but falling in others. AAA spokeswoman Rose Rougeau said that Texas cities Amarillo and El Paso were at all-time highs, while prices edged lower in eight other cities. Rougeau stated that strong consumer demand, decreased domestic output because of refinery troubles and lower gas imports apparently continue to keep prices high.
In nearby Arizona, gas prices also recently rose for about 14 week in a row. According to an AAA-Arizona survey, the statewide average for a gallon of self-serve unleaded regular was 3 dollars and 9 cents per gallon. That's one cent below last summer's steepest price, and getting 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 gasoline costs keep going higher, the dearth of oil refining capacity seems to be the most popular response. Some industry experts blame Congress, positing that the legislative body is preoccupied with forcing car companies to meet unreachable targets for fuel efficiency, while failing to address the oil refining problem. On May 8, the Senate Commerce Committee voted to raise fuel economy standards to an average of 35 miles per gallon in 2020 for cars and light trucks, with standards rising on a four percent annual basis until 2030.
According to some industry experts, Congress has depressed the construction of new oil refining capacity through proposed legislation that penalizes refiners when prices rise, that imposes extensive and expensive permit requirements for construction of new refineries and expansion at existing sites, and that allows for a degree of tort risk.
Construction of more refineries would certainly alleviate the gasoline supply problem, but because they can be so damaging to the surrounding environment, it is very hard to find a community that will approve of a new refinery. Under the logic of 'NIMBY' (Not In My Backyard), people like to purchase gasoline at low prices, but they don't want a refinery close to home.
About the Author
Matthew Paolini is a consultant with Citybook.com for the Phildelphia, PA business Yellow Pages division.
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