Bush plan will do little to ease pain at the pump

John W. Schoen Senior producer • Profile • E-mail

With pump prices still rising, spot outages of gasoline cropping up in some East Coast markets, and proposed solutions gaining momentum in Congress, President Bush’s plan to ease gasoline prices is aimed at calming growing consumer anger at the rising cost of filling up.

But the measures announced Tuesday aren’t likely to alter the forces that are pushing up the cost of crude oil, straining the supplies of gasoline to U.S. motorists and sending pump prices higher each week.

For starters, there is little the White House or Congress can do to control the price of crude. At recent highs of $75 a barrel, the cost of crude oil has jumped by a third since November as demand for oil continues to grow faster than global production capacity. Nervous oil buyers are paying these high prices because they're worried about possible supply bottlenecks from multiple hot spots like Iraq, Nigeria and Iran.

And the biggest single factor driving up the price of a gallon of gas is the sharp increase in oil prices.

"The reasons for high gasoline prices are very clear: the high cost of crude and the high cost of manufacturing gasoline," said John Felmy, chief economist for the American Petroleum Institute. "The idea that this is some sort of conspiracy is very unfortunate."

Bush's call to halt shipments of oil into the U.S. Strategic Petroleum Reserve will have little impact on global prices. With U.S. demand for oil running about 450 million barrels a month, less than half of one percent is diverted to the SPR.

On top of higher crude prices, the current rise in pump price is also seasonal: as the weather warms up and the summer driving season approaches, demand picks up every year. As demand falls again in the winter months, so do pump prices.

Price gouging probes
Strong demand and tight supplies for gasoline have pushed up retail prices faster than the cost of making it — which is one reason that refiner profit margins have doubled in the past year. Still, it’s not likely that Bush’s call for a federal investigation of price gouging will get very far. To begin with, there are no federal laws on price gouging.

About half the states have such laws, but they typically require an emergency declaration, usually in response to a temporary, local interruption in supplies of a given product. If a coming hurricane touches off a spike in demand for plywood, for example, and the local lumber yard triples its prices, price gouging laws apply in states that have enacted them. Though some states moved against gasoline dealers in the aftermath last fall's hurricanes, these laws can't be triggered without a formal declaration of a state of emergency. So far, that hasn’t happened.

NBC VIDEO Bush fights back on gas prices April 25: President Bush took action today to try and lower gas prices. NBC’s David Gregory reports from the White House. Nightly News

The laws on price fixing — when producers and suppliers conspire to set prices at a given level or agree not compete in certain market — are clearer. But the Federal Trade Commission has already looked at gasoline pricing several times and found no laws were broken, according to FTC spokesman Mitchell Katz.

“The commission does daily and weekly gas price monitoring,” said Katz. “In the studies we've conducted and the reports that we have put out we have not indicated that (gasoline) pricing is illegal or anti-competitive.”

The FTC's latest study on gas prices, ordered by Congress as part of last year’s comprehensive energy bill, is already well underway and due to be completed May 19.

New refineries?
Bush is also proposing to increase gasoline production by easing restrictions on the construction of new refiners. While it's true that no new U.S. refineries have been built in decades, production at existing refineries has been gradually expanding over that period.

But, even if new refineries were approved today, it would take years before they could be completed and brought on line. In the short-term, refiners and distributors are coping with new environmental regulations that have forced major changes in the way gasoline is produced and distributed.

Those include a one-time move to replace an additive called MTBE with ethanol, which has to be done this month as refiners and distributors switch over to summer blends that produce cleaner burning fuel.

“In order to do the switchover properly, each station has to clean out their tanks,” said John Maxwell, a spokesman with the New Jersey Petroleum Council. “They’ve got to drain them, clean them and scrub them. Every gas station.”

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