Gasoline Price Surge Revisited: Crude Oil and Refinery Issues (CRS Report for Congress)
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| Release Date |
Revised Dec. 23, 2004 |
| Report Number |
RL32343 |
| Report Type |
Report |
| Authors |
Lawrence Kumins and Robert Bamberger, Resources, Science, and Industry Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Since late 2002, gasoline prices have been extremely volatile, with the national average spiking
above $1.70 three times. Most recently, the nationwide pump price for regular fuel set a new record
as momentum carried it over $2.00 per gallon. Prices in some states -- reaching a high of $2.45 per
gallon in California -- are much above the national average. In addition to the market forces affecting
pump prices in the United States, the Organization of Petroleum Exporting Countries (OPEC)
announced a production cut effective in January 2005. At a minimum, this is likely to support crude
prices; crude prices have significant impact on prices at the pump.
Apart from higher crude oil prices, gasoline prices are strongly influenced by the supply and
demand situation at the pump. Since 1999, the only growth in U.S. oil consumption has been
increased gasoline demand, which has risen by 600,000 barrels per day to a current annual average
of 9.0 million barrels per day. While this might seem to be a relatively small amount, it has directly
increased demand for imports of foreign gasoline, since U.S. refineries have not added capacity as
gasoline demand has grown. Demand for imported gasoline now exceeds one million barrels per day.
In addition to the high demand for imported gasoline, the quality of gasoline sought from
foreign refiners has become a factor. As the specifications for environmentally acceptable fuel have
become more stringent, the complexity of manufacturing "U.S. spec" gasoline has increased. Not
all refiners can economically make fuel that meets domestic requirements. U.S. gasoline marketers
seeking imports must shop world markets for a scarce commodity; accordingly, prices are high.
These high-priced incremental supplies play an important role in determining prices at the pump,
because all gasoline tends to be priced by the market at the cost of the last units supplied.
Other factors contributing to the pump price situation include the state of gasoline and crude
oil inventories at U.S. refineries. Both are recovering from low levels. Gasoline inventories available
for consumption amount to less than two days of supply. Crude oil stocks -- from which gasoline
consumed is replaced -- are still at low levels, although rebounding somewhat from last winter's
record lows. Petroleum inventories are low because global oil supplies are tight, in part due to strong
demand, especially in Asia. OPEC production policy is a consideration as well.
As gasoline prices rise, so does interest in finding some sort of public policy remedy that would
return lower and more stable prices. Among the options generally discussed are a release of crude
from the Strategic Petroleum Reserve and the relaxation of Environmental Protection Agency rules
regarding gasoline composition. Both are controversial, with the wisdom and effectiveness of each
challenged by some.
This report will be updated to reflect significant changes in the factors impacting gasoline
markets and prices.
