This article first appeared in the St. Louis Beacon, April 29, 2011 - WASHINGTON - As gasoline prices continued to rise this week -- averaging about $3.88 a gallon in the St. Louis area on Friday -- federal officials and lawmakers scrambled to assess blame for the increases and find ways to stabilize prices at the pump.
President Barack Obama has asked the Justice Department to investigate possible price-gouging or fraud in oil markets. Congress is preparing to vote on proposals to expand oil drilling and scale back tax breaks for the oil industry. And a number of lawmakers, including Sens. Roy Blunt, R-Mo., and Mark Kirk, R-Ill., are pushing for legislative action on "boutique fuels" and other fronts.
But gasoline supply experts and many economists contend that the main underlying reasons for this year's gas price increases -- instability in the oil-rich Middle East and North Africa, coupled with a decline in the value of the U.S. dollar and a steady increase in the worldwide demand for oil -- won't be easily and swiftly solved.
In the meantime, the American Automobile Association's Daily Fuel Gauge Report says gas price increases are continuing. The average price for regular gas in the St. Louis area hit $3.88 a gallon on Friday -- climbing slowly toward the local record of $3.98 on July 14, 2008, according to Michael J. Right, AAA Missouri's vice president for public affairs. "Prices are continuing to trend upward," he said.
The federal government's Energy Information Administration reported that the average price of regular gasoline this week was $3.88 a gallon, up by about a dollar from a year ago. The average price in the Midwest was $3.90 a gallon, but a gallon cost well over $4 in California, Hawaii, Alaska and parts of Illinois.
Over the last two years, the average American household's motor fuel expenses are up 76 percent, according to a study by the Oil Price Information Service Missouri ranked 23rd highest among states in the percentage of household income spent on gasoline -- 7.9 percent -- while Illinois households spent about 5.6 percent of their income on fuel.
A recent Washington Post/ABC News survey reported that 7 in 10 respondents said that higher gas prices had caused financial strain on their families; 44 percent said they were driving less because of those prices. However, the typical respondent who has not yet cut back on driving said gas prices would have to reach $5 a gallon before they would significantly change their driving habits.
"Missourians are hurting right now with high gas prices," said U.S. Rep. Russ Carnahan, D-St. Louis, in a statement Thursday to the Beacon. "We need to ensure that speculators aren't manipulating the market for their own profit, but the solution to our foreign oil addiction does not lie with quick fixes or window-dressing."
Price Gouging in Oil Markets?
Are profiteers using the current international uneasiness about oil supplies as an excuse to raise prices at the pump? It's a logical question with no easy answer.
In a speech last week, Obama said, "There's no silver bullet that can bring down gas prices right away." But he backed "responsible oil production at home" and directed Attorney General Eric H. Holder to probe reports of gasoline price-gouging. Obama said the goal was to "root out any cases of fraud or manipulation in the oil markets that might affect gas prices -- and that includes the role of traders and speculators."
There is no doubt that speculation plays a role in international oil prices -- as well as the prices of most other commodities -- but experts say it is unclear whether there has been any illegal collusion to manipulate the price of oil illegally.
"Sometimes people try to intertwine the word 'speculation' -- which is part of every economic market we operate in -- with [price] 'manipulation,' which is totally illegal and should be punished. There is a major difference," said Charles T. Drevna, president of the National Petrochemical and Refiners Association.
Drevna told the Beacon that uncertainty about future Middle East oil supplies has increased oil prices, but so has the drop in the U.S. dollar's value. "We're looking at the lowest value of the dollar in three years," he said. "There's little wonder that investors are out there buying gold and silver and ... speculating on crude oil futures. And that's driving up the price of crude" -- even though the oil supply has been adequate.
While some critics have blamed refiners and distributors for taking advantage of oil costs to burn consumers, Drevna said U.S. refiners "are doing everything we can to trim costs and prevent a total pass-through [of crude oil price hikes] on to the consumer." In this year's first quarter, he said, the "average retail price of gas has risen 58 cents a gallon while, on a comparative basis, the average cost of crude [oil] has risen 65 cents a gallon."
Seeking to link the general dissatisfaction over Big Oil with the need to tackle the federal budget crisis, Obama also has called for scaling back tax credits used by oil companies. "These folks don't need further incentives by getting a better deal than the mom-and-pop shop down the street when they do their taxes," Obama said. "Instead of subsidizing yesterday's energy sources, let's invest in tomorrow's."
There is no doubt that big oil companies are faring well. On Thursday, Exxon Mobil Corp. -- the largest U.S. oil company -- announced first-quarter profits of $10.7 billion, an increase of 69 percent compared with the same period last year. It was the fifth consecutive quarter of Exxon earnings increases. Earlier in the day, Royal Dutch Shell -- the parent of Shell Oil -- reported a 30 percent increase in profit for the first quarter.
Democratic leaders in the U.S. Senate and House, following Obama's lead, will seek a vote as early as next week to end or scale back the $4 billion in tax incentives that oil companies receive. They argue that the tax breaks are subsidies, while the companies regard them as incentives for more oil exploration and production.
While diverting such subsidies to greener energy might help in the long term, most observers don't think such tax changes -- even if Congress would enact them -- would have an impact on current gasoline prices.
One opponent of such measures is Rep. John Shimkus, R-Collinsville, who chairs a panel of the House Energy and Commerce Committee. He told the Beacon on Thursday that "gas prices are high because of our reliance on imported crude oil in a destabilized world market. That increases the risk factor, which influences commodity traders."
Shimkus, who says House Republicans plan to bring up a vote soon on legislation to lessen barriers to U.S. oil exploration and drilling, asserts that the best way to lower gas prices "is more development of oil and gas in the United States and Canada."
But Carnahan and others contend that the most logical long-term solution would be shifting to new energy technologies that would lessen the demand for oil.
"The only long-term solution to our dependence on resources that come from unstable and unfriendly parts of the world is investing in new energy technology here at home, using whatever means are at our disposal," he said.
Do 'Boutique Blends' Increase Gas Prices?
Another factor that some contend is exacerbating gas prices at the pump is the prevalence of so-called "boutique fuels" in St. Louis and other areas.
A boutique fuel is a unique fuel blend demanded by a state or local air pollution agency and approved by EPA as part of an implementation plan to help meet national air quality standards.
This month, Blunt and Kirk gave a joint presentation on the U.S. Senate floor describing an amendment they plan to push that aims to reduce the number of specialized fuel blends. In doing so, they contend, it might help lower gas prices in some areas, especially in times of shortages.
"In Missouri, you buy one kind of gas in St. Louis, another blend of fuel in the Kansas City area and a third blend in-between," said Blunt. He said the amendment would cap the number of boutique blends and also allow the president to suspend the requirements for such blends if the supply is disrupted.
"If fuel is $4 a gallon, something has to give [because] it impacts the entire economy," Blunt said. "This [amendment] would help solve that problem.
Kirk, pointing to a U.S. map placing the 17 different fuel blends — as shown in the EPA's 2006 "Boutique Fuels Report" -- said "we have created an incredible [gas] price rigidity in the system ... We should not have 17 different sub-markets with the ability to charge the American driving public higher prices than would otherwise be the case."
Blunt says 38 senators back his amendment, which is supported by interest groups such as the Association for Convenience and Petroleum Retailing, which represents the nation's 117,000 convenience stores that sell fuel. The group argues that "the proliferation of boutique fuels has significantly deteriorated the efficiency of the domestic motor fuels distribution system."
But others say that capping boutique fuels won't have much of an impact on gas prices at the pump -- and environmental groups say eliminating such blends would hurt clean air quality. An energy bill approved in 2005 already limited the future growth of new boutique fuels and gave the EPA some authority "to waive boutique fuel requirements when necessary to help alleviate unexpected supply disruptions."
Drevna of the refiners' association told the Beacon that he did not think boutique fuels are having much of an impact on gasoline prices, and will have even less of an impact "as we go to cleaner and cleaner gasolines and blends with ethanol all over the country."
He said boutique fuels originally were developed as "a cheaper alternative" for communities that did not want to switch to reformulated gasoline to comply with Clean Air standards. "On average, boutique fuels were always cheaper" than such reformulated gas, he said -- other than at times of emergency or temporary shortages.