Higher gasoline prices still a bargain

Friday, February 14, 2003

For the last two months, the retail price of gasoline across the nation has been going up. Current prices are approximately 50 cents a gallon higher than a year ago. Consumers have been looking for someone or something to blame.

Some of those who complain like to put the blame on a conspiracy. There's the OPEC conspiracy theory that maintains oil-producing countries are manipulating the supply and price of crude oil. The fact is that OPEC producers have increased production in an attempt to make up for the recent loss of Venezuelan oil. Venezuela's current political unrest has all but shut off its oil shipments.

Some like to put the blame on government leaders -- they're all oil men who only want to line their pockets, right? -- believed to be purposely manipulating the oil market.

Others who complain like to blame gasoline retailers. They claim retailers are using a bad situation for profiteering.

The reason such complaints thrive is that there is some -- but only a grain -- of truth to support unfounded suppositions.

Yes, OPEC has attempted at times to manipulate oil supplies and prices. But these oil-producing nations have learned the hard way that such schemes nearly always backfire, and they're the ones who wind up getting the raw end of the deal.

Yes, there have been government abuses at times aimed at controlling the marketplace for a variety of commodities, oil included. But nearly every instance has resulted in stricter controls and regulations that make such deals impractical as well as illegal.

And, yes, there have been instances of price gouging by some gasoline retailers. Remember the handful of stations that raised prices a couple of dollars the day of the Sept. 11, 2001, terrorist attacks? Remember the fallout that forced them to quickly lower those outrageous prices?

Here are some more facts that might make it easier to understand what happens when gasoline prices swing up or down.

Oil stockpiles are, indeed, low right now. Some refiners have switched to production of heating oil -- the main fuel in the heavily populated Northeast -- to meet the demands of a particularly severe winter. As supplies go down, the price of gasoline, like almost any commodity, goes up.

The political turmoil in Venezuela, which last year provided 13 percent of the oil used in the United States, is now a trickele.

The uncertainty about a possible war in Iraq is having an effect on oil prices. Jitters, regardless of the cause, always make the marketplace unstable. Look at U.S. and world stock markets.

But here are some things to keep in mind as consumers watch the numbers twirl on gasoline pumps:

Except in rare instances, gasoline retailers would find it difficult to artificially raise prices in order to increase their profit for the simple reason that the competitor down the street would quickly take advantage of the situation.

Retail gasoline prices today are still below a peak in the $1.90-a-gallon range of 2001 -- before the terrorist attacks. Prices plunged nearly 70 cents a gallon by the end of 2001.

Adjusted for inflation, the retail price of gasoline has dropped since the end of the 1970s. In 1979, gasoline prices at the pump were in the 75-cent-a-gallon range. After increases in the early 1980s, prices sank in 1986 and have pretty much leveled off -- aside from seasonal and supply blips -- at just over 60 cents a gallon in 1979 dollars.

Compared to worldwide markets, the cost of filling up your tank in America is still a bargain -- even if we don't have to be happy about that.

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