Oil Companies’ Claim That Crude Oil Costs Drive Gasoline Price Makes No Sense With Today’s Barrel Prices Up More Than 40% Over Spring, When Pump Prices Hit $3.25/Gallon

Santa Monica, CA — The oil industry’s longstanding argument that high gas prices in recent years were driven by the rising price of crude oil would leave motorists paying about $4.50/gallon at current oil prices if the industry claim was accurate, said the Foundation for Taxpayer and Consumer Rights and its OilWatchdog.org project. The group said that the current national average of $2.76/gallon spotlights the profiteering of the spring gasoline price highs and the increasing politicization of gasoline pricing.

“If crude oil prices were the real driver of gasoline prices, we’d be paying $4.50 a gallon for gasoline today, based on the $3.25 that drivers were paying back in May,” said Judy Dugan, research director of FTCR and OilWatchdog.org. “Of course, those record prices in the spring were not tied to the price of crude oil either.”

In a radio interview in April 2006, the chief oil industry energy analyst, John Felmy of the American Petroleum Insitute, said flatly: “The market factors that have caused the price of gasoline to go up can be traced to the cost of crude oil and the cost of manufacturing gasoline — nothing more, nothing less.” API advertisements saying the same thing appeared in print as gasoline prices rose to records in the spring of 2006 and again this year. (See the Felmy statement here and the API print ad here.)

This argument is inconsistent with reality, charged FTCR, and so is oil companies’ more recent argument that prices react to “competitive” supply and demand.

With the price of a barrel of oil hitting $88, the price of gasoline is flat nationwide and has been that way for two months of sharply rising crude oil prices, noted the nonprofit, nonpartisan FTCR. In fact, at $2.759 a gallon, per AAA, pump prices today are substantially lower than the $3.20 a gallon national average this Spring, when crude sold for just over $60/barrel.

“There is no way left to connect the price of gasoline to the price of oil,” said Dugan. “The key factor is what amount of refining profit the oil companies are willing to seek, and for what reasons. In the absence of a connection to oil prices, politics is certainly part of it. This year, threats by Congress to pull back oil subsidies and pass a law against price gouging peaked along with gasoline prices. Oil companies and refiners reacted to save their hides.”

FTCR also pointed to last fall’s precipitous drop in the price of gasoline, which trimmed oil company profits in the weeks before the November 2006 election. Gasoline prices rose again immediately after the election, despite falling oil prices, and were further boosted by President Bush‘s announcement in January that he would increase the size of the Strategic Oil Reserve. (See FTCR analysis of pre-election pricing here.)

If oil companies switch to a “supply and demand” argument about gasoline prices, that does not get them off the hook for two years’ worth of price manipulation, said FTCR.

“Oil companies exert nearly complete control over the supply of gasoline, through decisions about their refineries, their oil and gasoline imports, and the supply they keep on hand,” said Dugan. “They can roughly tune the supply to match their price targets.” (See OilWatchdog’s report on supply manipulation here.)

FTCR has called for regulation of the supply of gasoline in order to protect against the manipulation of pump prices for excessive profit and at times political gain.

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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at: www.ConsumerWatchdog.org. Also check our energy issues site: www.OilWatchdog.org.