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Information TechnologySolutions
Oil and gas prices have risen to their highest level in twoyears, and relief is likely not in sight. As of March 16,2011, regular gasoline averaged $3.56 a gallon – up $0.85from September 2010. Similarly, diesel prices are up to$3.90 a gallon from $2.95 just six months prior.
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Analystsestimate that gasoline will average $3.56 a gallon in 2011and $3.57 per gallon in 2012 – with a 25 percentprobability that motorists will see $4.00 a gallon thiscoming summer.
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Figure 1: U.S. Average Retail Prices per Gallon (Regular)*
*U.S. Energy Information Administration
As global demand increases and oil markets becometighter, any disturbance to supply can cause oil prices tojump markedly. Since February 2011, instability in theMiddle East and North Africa has forced oil prices toincrease about $15 to over $100 a barrel.
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Back in March2010, oil traded on the New York Mercantile Exchangeaveraged around $84 a barrel, but just one year later it isover $100 – reaching $104 in mid-March.
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Moreover, the U.S. Energy Information Administration(EIA) anticipates that global consumption will grow anannual average of 1.6 million barrels per day through2012, yet non-OPEC (Organization of the PetroleumExporting Countries) supply will only increase 170,000barrels a day in 2011 – before declining again in 2012.
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In response, OPEC production will likely increase by 1.9million barrels per day, a substantial figure relative to non-OPEC production.
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Continued unrest in producing countries – including Libya–and instability throughout the region as well asuncertainty about future economic growth and energydemand are all factors that can raise oil prices in thecoming years.
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However, the International Energy Agency(IEA) recently cautioned that sustained high oil prices willdamage world economic recovery.
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Concern remains thatif oil prices soar as high as $150 a barrel, the economycould get thrown back into recession.
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Guide to America’sEnergy Supplies andGasoline Prices
High Gas Prices Hurt American Consumers, Industryand Small Businesses
According to the EIA, higher oil prices translate into the average U.S. household spending about $700more in gasoline than it spent in 2010.
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In fact, according to Cameron Hanover for every penny theprice of gasoline increases, it costs consumers an additional $4 million per day – which equals $1.4billion over an entire year.
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As high gas price spikes continue to guzzle up more of American families’ monthly budgets andincrease the costs of other consumer goods, it should come as no surprise that nine out of tenAmericans are concerned about rising gas prices.
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In fact, a recent CNN poll showed that two-thirdsof those surveyed say their families are having a hard time getting by with rising gas prices, andnearly 80 percent of respondents think gas could hit $5 a gallon by the end of the year.
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Higher oil prices also raise expenses for small businesses and manufacturers – from increasing rawmaterial costs for factories to raising transportation costs for the U.S. service sector.
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At the same
“February ProducerPrice Index (PPI)doubled from January…the numbers,though, reveal thatfood and energy, asexpected, have beengoing haywire, withfinished foods showingtheir
greatest monthlyincrease sinceNovember 1974,gaining 3.9%.”
Source: Forbes.com,March 16, 2011
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time, fuel-intensive industries, such asfarming, trucking, manufacturing and theairline industry, have all seen theiroperating expenses rise – which oftentimescan be passed to consumers in the form of higher costs for goods and services. Forexample, United Continental Holdings hasalready imposed a $20 fuel surcharge onthe price of a round-trip, domestic airlineticket – which only partially covers theburden from increased fuel costs.
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This isjust one example of how consumers arealready being affected – let’s take a look atwhat occurred just a few years ago whenoil prices $147 a barrel.In 2008, 10 U.S. airlines were forced toclose and more than 36,000 jobs were cutall due to high jet fuel prices.
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Similarly,high diesel prices in the first half of 2008led to the failure of more than 1,900trucking companies that operated at leastfive trucks.
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Since the trucking industrycould not absorb all the costs of high dieselprices, part of the expense was passedonto consumers. Yet, with consumersbuying less due to increased costs for allgoods, the trucking industry – as well asseveral other service industries andmanufacturers – saw a decreased demandfor their goods and services, multiplyingthe impact on the overall economy.The United States has recently limited itsability to thoughtfully respond to high oilprices and tight oil markets due to thefollowing domestic policies:
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moratoria, drilling bans, slowedpermitting and an uncertainregulatory environment for onshoreand offshore oil and natural gasexploration and production;
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policies and programs that restrictaccess to affordable domesticenergy, such as establishing Low-Carbon Fuel Standards (LCFS) andthe designation of wilderness areasand national monuments withoutappropriate public input; and
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unnecessary and duplicative federaland state regulations.Fortunately for the United States, by simplyleveraging our nation’s abundant resourcesand promoting a reasonable approach tosupport the use of all sources of domesticenergy, we can abate high oil prices – whilecreating jobs, strengthening our energysecurity and paying down our deficits withincreased government revenues.
CEA Consumer-Advocate Voices Concern:
“We go to the grocery store, doctorappointments and church. That’s itanymore. [It’s] not just gas prices that areout of control either; [it’s] what starts therise in prices for everything.”-
Posted on CEA’s Facebook: March 17, 2011
http://consumerenergyalliance.orghttp://consumerenergyalliance.orghttp://consumerenergyalliance.orghttp://consumerenergyalliance.org
The cost to produce and deliver gasoline to consumers includesthe following expenses: crude oil to refiners; refining andprocessing; distribution and marketing; retail stationexpenditures; taxes and other fees.Crude oil represents the biggest cost component and typicallymakes up between 65% and 70% of the total cost of one gallonof regular gasoline.
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As such, there is a direct correlationbetween the volatility in oil prices and the volatility in gasolineprices – meaning if we want to lower gasoline prices, we need access to reliable sources of oil.
What We Pay for in a Gallon ofRegular Gasoline*
*U.S. Energy Information Administration
*Photo taken at a San Francisco gasstation on March 4, 2011.
Looking Inside a Gallon of Gas
 
Increased Access to DomesticEnergy Supplies Needed Nowto Relieve Pain at the Pumpand to Ensure a HealthyEconomy
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