Gas Prices Taking Priority in Campaign

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It's the presidential campaign season, gasoline prices are climbing, and the challenger is demanding that the president get more oil on the market and stop foreign suppliers from "holding our nation and our consumers hostage."

So it went in 2000, with the Republican challenger George W. Bush accusing a Democratic administration of failing Americans by letting prices go so high. Today, not much has changed — except Bush is president and prices are higher still.

By several broad measures, the cost of a gallon of gas has hit record-breaking heights. By any measure, prices have entered a political discomfort zone that could become combustible if the summer driving season puts yet more pressure on the expense of getting around.

Already, the debate is forming in the presidential contest, with Democrats in Congress testing themes John Kerry can use against Bush, and Republicans reminding voters that Kerry backed a 4.3-cent increase in the gas tax in 1993 and spoke in support of a 50-cent tax increase on a gallon a year later.

"Voters who are concerned about higher gas prices certainly will be troubled by a candidate who has supported an astronomical increase in the price per gallon," Bush campaign spokesman Steve Schmidt said. The 50-cent increase, proposed by another senator for deficit reduction, did not come to a Senate vote.

This time, prices have climbed on Bush's watch and his words against President Clinton and Al Gore from 2000 hang out there to be used, in turn, against him: "What I think the president ought to do," Bush said then, "is he ought to get on the phone with the OPEC cartel and say, `We expect you to open your spigots.'"

Kerry is mining a similar vein. He said Bush and Dick Cheney campaigned promising to make energy a centerpiece of their administration's agenda," only to see record industry profits and prices.

Gas prices are about 8 cents higher than their peak in 2000.

The idea that simply jawboning OPEC can bring back cheap gas is dismissed by oil analysts as an oversimplification of the reality of the marketplace, where prices are moved by supply, reprocessing and distribution matters too complex to form a campaign sound bite.

Bush spokesman Scott McClellan offered no sense Wednesday that pressure on OPEC is a magic pill, saying blandly, "We continue to engage in ongoing and regular consultations with major producers from around the world."

McClellan said the country needs an energy policy that increases domestic production, expands conservation and promotes renewable energy. For his part, Kerry aggressively pitches conservation and renewables but opposes drilling in the Arctic National Wildlife Refuge and coastal waters, except for existing operations in the Gulf of Mexico.

The Bush administration has ruled out tapping into the nation's emergency reserve to put more oil on the market; indeed, it has been replenishing that pool. Kerry has not proposed drawing from the reserve, either.

AAA, formerly the American Automobile Association, reported Tuesday that the price for a gallon of self-serve unleaded hit a national average of nearly $1.74 — a record in constant dollars, although not when inflation is taken into account. Using today's dollar, motorists paid the equivalent of $2.90 a gallon in March 1981, the government has said.

AAA spokesman Mantill Williams said drivers tolerate spikes in gasoline prices with little complaint, but people get restive when costs stay high and start looking for someone to blame. That may be happening now, he said.

"If they continue to go upward and they stay up for a consistent amount of time, it could be an issue that peaks right at the time these guys are competing for their votes," Williams said. "Any time you have an issue that affects a consumer on a daily basis, and they see it and they don't see action ... that can only have some type of impact on an election."

Still to come: the annual switchover to summer fuel from winter blends, a change that often adds pennies to the gallon, and an April 1 deadline by the OPEC oil cartel to reduce production and crack down on countries that exceed the level.

Beyond that, the high summer demand for gas puts upward pressure on prices, although they could well drop during the fall campaign when Americans are most paying attention to the election.

For a pocketbook issue, gas prices are about as in-your-face as it gets — a sticker-shock reminder at every fill-up or drive past a gas station.

But political analysts say the upward trend in prices over several months has been slow to bite as a campaign issue.

"It's more of an annoyance," said Al Tuchfarber, a political scientist at the University of Cincinnati. "It's much too far out from the election to suggest it will have a meaningful impact."

The $2-a-gallon symbolic barrier has already been broken in the West, and Michigan pollster Ed Sarpolus said his surveys have found people in his state seem willing to put up with a hypothetical $3 gallon before they change their driving habits.

"Politically, it's not there yet," Sarpolus said.

Generally, economic issues have proven to be Kerry's strengths in polls, while Bush has the advantage on matters of national security and terrorism. And economic troubles tend to be blamed on those in power.

"I'm wondering about the huge political and human cost with being dependent on foreign oil," Margaret Terry, 36, of Alexandria, Va., said after paying more than $20 to top off her tank. "I think Bush has a lot of oil connections. It makes me wonder."

On the Net:

An interactive look at gas prices is available at: Extended Web Coverage

Gas Prices

What determines the price you pay at the pump?

  • Federal, State, and local taxes are a large component of the retail price of gasoline. Taxes (not including county and local taxes) account for approximately 28 percent of the cost of a gallon of gasoline. Within this national average, federal excise taxes are 18.4 cents per gallon and state excise taxes average about 20 cents per gallon. Also, some states levy additional state sales taxes, some of which are applied to the federal and state excise taxes. Additional local county and city taxes can have a significant impact on the price of gasoline.

  • Refining costs and profits comprise about 14 percent of the retail price of gasoline. This component varies from region to region due to the different formulations required in different parts of the country.

  • Distribution, marketing and retail station costs and profits combined make up 12 percent of the cost of a gallon of gasoline. From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, then loaded into trucks for delivery to individual stations. Some retail outlets are owned and operated by refiners, while others are independent businesses, which purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.

  • In 2000, when the price of crude oil averaged $28.23 per barrel, crude oil accounted for about 46 percent of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 1999 was $17.51 per barrel, and it composed 37 percent of the cost of a gallon of regular gasoline. The share of the retail price of regular grade gasoline that crude oil costs represent varies somewhat over time and among regions.

Why do gas prices fluctuate?

  • Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition.

  • Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events or domestic problems, such as refinery or pipeline outages.

  • When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and decline in the fall and winter, when people drive less. Good weather and vacations cause U.S. summer gasoline demand to average about six percent higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 5-6 cents during the summer.

  • Vents in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council’s study U.S. Petroleum Supply - Inventory Dynamics.

  • Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC).

  • OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world's oil supply, accounting for nearly 40 percent of the world's production of crude oil and holding about 67 percent of the world's estimated crude oil reserves.

  • Rapid gasoline price increases have occurred in response to crude oil shortages caused by, for example, the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990.

  • The most recent gasoline price increases are due in part to OPEC crude oil production cuts in 1999. In addition, higher demand from a recovering Asian economy caused more competitive bidding for crude oil supplies in the international market and was a contributing factor to an increase in gasoline prices in 1999.

  • OPEC once again cut crude oil production in Jan. 2001 to forestall anticipated excess supply in late Spring.

  • A continuing economic boom in the United States has led to greater demand for gasoline. If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Such was the case in late summer 1997, as a demand surge drained gasoline stocks and prices rose rapidly.

Source: contributed to this report.