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Public Citizen clears up debate around high gas prices

The current rise in gas prices has escalated partisan bickering about what factors determine the cost of gas and how we can address the volatility of prices. In an effort to cut through the competing rhetoric about gas prices and the various legislative efforts aimed at lowering them, Public Citizen recently hosted a webinar titled “Gas Prices: Beyond Supply and Demand,” in which we explained the cost of gasoline from oil well to pump, exposed how Wall Street artificially drives up gas prices and identified the ways American consumers can fight back against Big Oil and financial speculators.

View Gas Prices: Beyond Supply and Demand

The Q & A portion of the webinar provided an opportunity to broaden our discussion to include other elements related to oil consumption, additional factors that affect domestic gas prices and potential short-term policy fixes to lower the cost of gas.

Below are three questions raised by webinar participants that represent the scope of issues discussed during the April 26 webinar.

The use of oil beyond transportation fuel

How much oil is being used to create plastic products?

Petroleum products include transportation fuels, fuel oils for heating and electricity generation, asphalt and road oil, and the feedstocks used to make chemicals, plastics and synthetic materials found in a wide range of consumer products. About 71 percent of petroleum that we use is for transportation fuels. Petroleum feedstocks make up about 2 percent. Two percent sounds small, but the U.S. consumes seven billion barrels of oil a year, which means 140 million barrels of oil are used for consumer products like bottles, containers and bags.

Many people depend on their cars to get around, so they have little choice but to purchase gasoline. However, it’s much easier to avoid using plastic products and thereby reduce demand for petroleum products through consumer purchase power.

The role of refineries

What is the relationship between the glut of oil storage facilities in Cushing, Okla., and the closing of East Coast refineries?

Refineries are where crude oil is processed and refined into petroleum products like gasoline. There are about 140 refining facilities in the U.S. Refining profitability is largely determined by the margin between the cost of crude oil and the value of the refined product. The current squeeze on U.S. refineries is due to the combination of high oil prices and weak domestic demand for gasoline. As a result, we have refinery overcapacity, which is pushing down refining profit margins, persuading large refining facilities in the northeast to close their doors. Why in the northeast?

Refiners in the northeast are typically fitted to process “sweet” oil from Brent crude, imported from oil fields in the North Sea, which is easier to refine but considerably more expensive than sour crude, which comes from Canada, the deep water of the Gulf of Mexico and South America. Northeast refineries also process West Texas Intermediate crude, a grade of sweet oil similar to Brent, but that is produced in North America.

Refineries in the Midwest are fitted to refine the heavier crudes and have access to the West Texas Intermediate crude.

Refineries have an incentive to either close or boost exports (we’re now exporting 3 million barrels of refined petroleum products every day) to keep gasoline prices higher than they otherwise would be.

Other solutions to lowering gas prices?

Will releasing oil from the strategic reserves lower gas prices?

In response to the 1973 Arab oil embargo, Congress created the Strategic Petroleum Reserve (SPR). In the event of a severe energy supply interruption, the president has the authority to release oil from the SPR.

The question, then, is not just whether releasing reserves lowers gas prices, but whether high gas prices are the result of a severe energy supply interruption. Minor supply disruptions took place in Libya and Yemen due to political turmoil and in Iran due to sanctions. Some argue that releasing the SPR could reduce pressure on the prices of oil by increasing supply and disarming speculation, which could temporarily help reduce gasoline prices.

However, we are not in a state of severe supply disruption, and releasing reserves to help control gas prices might not be a legitimate use for the stockpiles. Further, it would not address the fundamental issues with financial speculators in the commodities market. Releasing the reserves is a short-term response with a definitive end. Once the release ends, speculation will ramp back up.

In addition to providing education on these issues, Public Citizen is working to hold Wall Street accountable for oil market manipulation, limit the influence of financial speculators on gas prices, and promote clean energy technology and alternative fuels to decrease our dependency on oil.

Learn more about our work.

Do you have questions related to gas prices or the oil market? Submit a question in the comment section below.