Congressman Gilchrest's Statement on Gas Prices
While disruptions in supply and distribution of gasoline, oil, and natural gas from recent hurricanes in the Gulf of Mexico may limit supplies this winter and increase energy prices, both gasoline and natural gas prices were declining by the end of October of this year. The volatility of gasoline and natural gas price fluctuations has been further exacerbated by severe weather in the Gulf of Mexico, which is the largest area of domestic oil and gas production in the US and the largest port for imported petroleum products. To address national energy policy shortcomings highlighted by recent Gulf of Mexico storms, Congress has held a number of hearings and is now moving to pass legislation to resolve these challenges.
During the first week of October, oil prices fell from a record of over $70 per barrel in late August to about $61 per barrel in early October. As crude oil prices decline--due to reduced consumer demand--and as refineries and pipelines come back on line from storm damage, gasoline prices may continue to drop and plateau until colder weather arrives. Gasoline, diesel, and home heating oil are all highly refined crude oil products. Prices this winter for these products may increase due to the inability of the refinery industry to prepare and store supplies of refined products and an expected increase in consumer demand.
Congress remains concerned about the impact of high gas prices on our constituents, industries, and other US interests, and we are working hard to meet our growing need to increase the capacity of the US to refine crude oil so that supply of these products increases and prices become more stable. We are also immediately addressing complaints of price gouging across the nation. In fact, Congress is finalizing a spending bill for FY 2006 which includes a mandate for a federal investigation into gas price gouging since Hurricane Katrina--in direct response to consumer complaints to Congress from Maryland’s 1st Congressional District and across the country. A Federal Trade Commission investigation into gas pricing in general, ordered by Congress, is already underway.
Gasoline Price Components
• The cost of crude oil is the largest factor in determining gasoline prices. 50 percent of the price of gasoline is reflective of the cost of crude oil. Local gasoline prices take about seven weeks to reflect changes in crude oil prices.
• The cost to refine oil and the process to transform crude oil into gasoline make up 21 percent of the total cost of gas.
• Local, state and federal taxes are levied on gasoline, accounting for 19 percent of the total cost.|
• Gas prices fluctuate based on where you live, taking into account the distance from ports and the difficulty of transporting gas to certain locations. Costs incurred by gasoline company’s advertising campaigns are passed onto you, the consumer, and account for approximately 10 percent of the total cost of gasoline.
Causes of Overall Gasoline Price Fluctuations
• Several outside forces influence the price of gasoline. These include time of year, environmental standards, and domestic/world events.
• Gas prices will go up during the summer and holiday seasons. Nice weather and vacations increase the U.S.’ summer gas demand by 5% compared to the rest of the year. This results in higher gas prices before and during the summer season.
• Crude oil prices are determined by worldwide supply and demand, with significant influence by the Oil Producing and Exporting Countries (OPEC) as they determine how much oil to produce and sell to other nations. The more crude oil OPEC elects to produce or release, generally the lower the price. OPEC holds 2/3 of the world’s estimated crude oil reserves.
Causes of Regional Gas Price Fluctuation
• Americans living farther from the Gulf Coast (the source of half of the gasoline produced in the US) tend to have higher gas prices because the cost to transport gas from the refinery affects the price at the pump.
• Like any product, gas prices are influenced by competition. Consumers in remote locations face a trade off between higher local prices and driving to an area with competitive lower priced alternatives.
• Anything that would disrupt the supply of gas affects prices because bidding will increase to capture what supply of gas is available.
• Some areas of the country have stricter environmental programs targeted at reducing air pollution. These programs require reformulated gasoline and restrictions on transportation and storage, leading to an increased pump price.
Other Factors
• Worldwide demand for oil has sky-rocketed, causing the competition for the existing oil to increase its price.
• The United States is currently experiencing a shortage in oil refineries. Without the necessary number of refineries the oil cannot be transformed into gasoline fast enough to meet the demand of the American people.
• Fears of a terrorist attack crippling the market have driven oil prices up as much as 15 dollars a barrel.
• Domestic instability within oil exporting nations will also lead to jumps in gas prices. The possibility of major disruptions in the oil market will cause the price of crude oil to increase.
Price Gouging
As Congress and the Administration monitor prices of gas to protect American consumers, we need your help. I encourage you to report gas prices that you believe are unfair and not based on the factors outlined in the above statement or our gas price fact sheet. I encourage you to contact the office of the Maryland Attorney General by calling (410) 528-8662. Or you can click on Gaswatch and simply fill out and submit the form.
Useful Websites
• Energy Information Administration
• United States Department of Energy
• Gas.com and oil.com (World News Network)
