ICS Magazine

Record Gas Prices for Labor Day Expected

August 29, 2003
NEW YORK (Reuters) - Americans hitting the road for the Labor Day holiday will pay the highest U.S. gasoline prices ever because of a nationwide supply squeeze that has consumer advocates and trade groups wrangling over whom to blame.

Retail gasoline prices soared to a record $1.75 a gallon on average this week as inventories fell to their lowest levels in three years just ahead of the long Labor Day holiday, according to the U.S. Department of Energy (news - web sites).

More than 28 million travelers are expected to drive 50 miles or more for Labor Day vacations, up 2.2 percent from last year to an eight-year high, according to the American Automobile Association.

"This is bad timing for drivers," said Justin McNaull, a spokesman for the motorists' group.

The tight gasoline landscape is partly due to high crude oil costs, refinery outages after the colossal power blackout that cascaded through eight states in the Midwest and Northeast and a pipeline shutdown that caused shortages in Arizona.

But supply kinks are not the only reason for pumped up prices, industry experts said. Consumer advocates blame Big Oil, and the oil industry blames U.S. energy policy.

"Every three months or so the oil industry comes up with another excuse to raise the price of gasoline, and policy makers do nothing about it," said Mark Cooper, director of research for the Consumer Federation of America.

"The real reason for this is the oil industry keeps too little on hand in terms of supply, which means prices will surge ahead of high demand periods," he said. "This wouldn't be possible if the industry was truly competitive."

Cooper noted that some European legislation requires minimum petroleum inventory levels to reduce price swings.

The American Petroleum Institute (API), which represents U.S. oil companies, says its members maintain supplies that are sufficient to meet demand, and adds that years of mega-mergers have not reduced competition in the industry.

"We've been at a record pace in terms of producing and importing gasoline," said John Felmy, director of policy for API. "The problem is that you can't move the gasoline around because of the many different environmental specifications from state to state."

"There's also a problem of capacity everywhere in the petroleum industry," Felmy said. "Its impossible to site a new refinery, and profitability is terrible due to environmental investments and changes to fuel regulations."

"A new refinery or pipeline would get fought every step of the way," said Felmy.

The White House has worked to overhaul energy policy to increase domestic energy production, offer greater incentives for renewable energy, and promote nuclear energy.

The Senate passed an energy bill in July, but it still has to be reconciled with energy legislation passed in April by the House, before getting signed into law.

The U.S. Department of Energy is optimistic that gasoline prices will ease in September after peak summer demand.

"It is likely that prices should fall substantially beginning sometime in September," the Energy Information Administration, the DOE's statistical wing, said on Wednesday in its weekly review of the oil market.

"But for consumers, there is some comfort knowing that at some point in the coming weeks, retail gasoline prices should begin to drop again," the agency said.