Reid Blames Record Gas Prices on Oil Companies

By  | 

As gasoline prices soar to record highs, an industry official in Nevada says it's time to drill for oil in Alaska and off the California coast to help reduce prices at the pump.

But Sen. Harry Reid, D-Nev., is among those rejecting that call, saying the price jump is due more to corporate greed than environmental protections blocking access to domestic oil supplies.

"Big oil companies and refiners are getting rich and middle class families are getting gouged," Reid said in a Senate speech Wednesday.

The average price for a gallon of regular unleaded gas in Nevada rose to $2.25 on Tuesday - an all-time high for the state, AAA officials said.

"Much of the country has been hitting new all-time highs pretty much daily for the last week or so," AAA spokeswoman Jennifer Mack said Wednesday from San Francisco.

Sean Comey, AAA Nevada spokesman, said it is possible prices will drop some between now and the end of the summer, but don't count on it.

"It's also quite possible prices could increase beyond today's record high," Comey warned.

Peter Krueger, state executive for the Nevada Petroleum Marketers and Convenience Stores Association, said drilling off the California coast, in Alaska's North Slope and the Arctic National Wildlife Refuge are "policy and political questions" that need to be addressed.

"I think where we can pump crude oil out of the ground with minimal effects to the environment, we ought to be doing that," Krueger told KOH Radio in Reno.

"It is absolutely silly we are relying on foreign crude oil when there is - at least in the foreseeable future - plenty of oil off the coast of California and the North Slope. But certain people in this society won't allow us to access it and I think that is a great mistake," he said.

Krueger also said stricter environmental protections have increased fuel costs in places where air quality is a problem.

"We as a society have decided we want all these clean air regulations. I think we got them and now we are paying the price for them," he said.

President Bush said Wednesday that if Congress had approved his plan to drill in the Arctic National Wildlife Refuge, "an additional million barrels of oil would have been coming out of that part of the world, which would, obviously, have a positive impact for today's consumers."

Reid said allowing drilling in the refuge "would despoil a national treasure for little long-term gain in energy security."

"It's a simple fact that we cannot drill our way out of this problem. We are sitting on about 3 percent of the oil reserves in the world. ... and we consume about 25 percent of the oil that is produced," the senator said.

"Certainly our nation must promote the responsible production of oil and gas. But that doesn't mean we should roll back environmental protections of our priceless public lands to allow drilling."

The average price of gas in Nevada is up 13 cents from a month ago and tied with Washington state for fourth-highest in the country. California tops the list with $2.31, followed by Oregon and Hawaii, both averaging $2.27.

The national average is $2.01. Local averages in Nevada include: Elko, $2.04; Henderson and North Las Vegas, $2.21; Las Vegas, $2.23; Sparks, $2.28; Reno, $2.29; and Carson City, $2.31.

"It kills us," said Mike Merrill, a drywall contractor in Carson City who told the Nevada Appeal that driving to jobs costs him about $50 a day.

Bob Lamkin, owner of Bob's Shell in Carson City for 26 years, said the current price is 19 cents per gallon more than the highest level reached in August last year.

Krueger blames high prices primarily on "uncertainty in the marketplace."

"All the problems we are facing in Iraq are adding to that uncertainty," he said.

Price increases have followed the rising cost of crude oil, he said.

"Not long ago the price for crude oil was in the neighborhood of $30 a barrel. At that time, gas on the street in Reno was maybe $1.60. So with crude oil where it is today ($41), it is a significant increase," he said.

Reid said there's more to it than crude oil prices.

"This outrageous 58-cent increase in Nevada since January has not been driven by the rising cost of crude oil, but by corporate greed and profit," he said.

"It's clearly documented that refiner margins have doubled and tripled. The oil companies weren't content to make 25 cents on every gallon of gasoline. They now make 50 to 75 cents for every gallon of gasoline," he said.

In his floor speech, Reid singled out first quarter profits for some of the biggest oil companies:

- BP, up 165 percent

- Chevron-Texaco, up 294 percent

- Conoco-Phillips, up 44 percent

- ExxonMobil, up 125 percent 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.