The People of America's Oil and Natural Gas Indusry

Crude Prices and the Pump

Mark Green

Mark Green
Posted February 22, 2012

API Chief Economist John Felmy, discussing gasoline prices and other issues in a conference call with reporters on Tuesday:

“By far, the single biggest factor in today’s higher gasoline prices is the rising cost of crude oil. It has driven virtually all of the rise in gasoline prices. Crude oil prices are up because of supply and demand. World demand for crude is increasing as the economies of the world begin to recover, and the world’s excess oil production capacity is shrinking. Buyers of crude oil also are clearly concerned about the instability of major oil producing nations in North Africa and the Middle East.”

Felmy described how the price of a gallon of gasoline is dominated by two factors: the cost of the crude oil used to make it and taxes levied on each gallon by government:

“The price of crude is the biggest factor behind rising gasoline prices because it is the biggest cost component in making gasoline. When crude is at $100 for a standard 42‐gallon barrel – a little below where it is now – a refiner pays almost $2.40 for each gallon of that crude to make a gallon of gasoline. The next biggest component is taxes. They now average almost 49 cents a gallon, including federal, state and local taxes. Together, crude costs and taxes account for over $3.00 – or about 84 percent – of what people are paying at the pump today.”

Felmy called suggestions that refinery production levels and exports of refined products are affecting U.S. pump prices a “misleading distraction.” Felmy:

“U.S. refineries are pulling out all the stops to supply U.S. markets. They produced more gasoline last year than any year in history. …  As for exports of gasoline, this is a red herring. Exports are not causing gasoline prices to rise. Less than one‐sixth of product exports have been gasoline, and only a tiny amount of this was the reformulated gasoline used in larger metropolitan areas.”

These exports are good for America, Felmy said:

“U.S. refiners produce fuels primarily for American markets and always have. Moreover, to the extent we export any products, that puts downward pressure on prices of the products we import. Exports also mean jobs for Americans, including good paying U.S. refinery jobs, and a lower trade deficit.”

The challenge is for Washington to adopt energy policies that will benefit consumers. Felmy said the Keystone XL pipeline should be given the go-ahead, and the administration should ease access to U.S. oil and natural gas resources.

“The administration has not stepped up to the plate on any of this. It has consistently held back more oil and natural gas development, especially on federally controlled lands and offshore areas. It has said no to the Keystone XL pipeline. All of this has weakened our energy security and contributed to higher prices. … We think most Americans understand that producing at home more oil and natural gas would create jobs, enhance energy security, increase revenue to government and help consumers.”

On a related note, API President and CEO Jack Gerard talked to Fox Business about energy policy and gasoline prices. Check the video below:


ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.