The chief economist at the American Petroleum Institute swatted away assertions that the main cause of increasing gas prices in January and February in the United States was because of oil refineries going offline and therefore reducing the supply of gasoline and bumping up prices at the pump.
When asked what had caused the price of gasoline to go up over 36 consecutive days beginning in January, API’s Chief Economist John Felmy said that it was “basically three factors” going into the increase.
“What we’ve seen is the cost of crude oil has gone up sharply,” Felmy said on C-SPAN’s Washington Journal. “The cost of ethanol which is blended about 10 percent in all gallons of gasoline [has gone up]; and demand is up. So the net effect is you’ve had 56 cent per gallon increase since December,” he continued.
Ethanol is blended into gasoline because of the Environmental Protection Agency’s Renewable Fuel Standard. The standard mandates a biofuel minimum in gasoline that will continue until 2022.
Felmy says that the solution to the high gas price problem is for oil companies to begin to produce more or a worldwide reduction in demand.
“As I like to say there’s three big factors: China. China. China,” Felmy said. “Were basically at a record level of demand–90 million barrells a day–and with limited supply and OPEC production cuts–that’s why you have a tighter market.
When asked by a caller whether the U.S. Federal Reserve Banking System’s monetary policy had anything to do with the rise in gas prices, Felmy said that when the value of the dollar goes down OPEC reduces production, and thus raises the price of gasoline.
Earlier in the week, Sen. Ron Wyden (D-Ore.), the committee chairman for the Senate Energy and Natural Resources committee, said he plans on holding a hearing on rising gas prices to explain why gas prices are rising — and that he would use to hearing to explore the refineries question.
He also said there is “no reasonable explanation” for gas prices to have risen in recent months.
“The Iranians are not rattling around this week in the straights of Hormuz. We have not seen any kind of unusual developments,” he said on C-Span’s sunday broadcast of Newsmakers.
In response to Wyden’s comments, Felmy said: “Well, it’s really straight forward. The cost of crude oil has gone up. You have to understand that there’s 42 gallons in a barrel. So you just calculate how much the price increased in terms of cents per gallon. And that was about 29 cents.”
He continued: “Ethanol went up the equivalent of three cents. And demand increased. It’s really just simple arithmetic. In terms of production, production’s down a little bit. But inventories of gasoline are up. So there’s plenty out there its just a matter of how much more does it cost to make.”
He also said that the recent drop in gas prices and crude oil prices shows the “normal relationship of gasoline prices lagging crude prices.”
Oil prices fell for three consecutive days beginning on February 23, according to the AAA. Gas prices for February were on average 3 cents higher than in February 2012. Prices also increased 38 cents in February–out of the 49 cent increase that began in January.
At the beginning of 2013, national gas prices averaged $3.29 but has since risen to $3.78 per gallon.
The AAA does not credit most of the rise in gas prices to a rise in crude oil prices.
“The recent surge in retail prices has been driven only somewhat by rising crude oil prices and instead has been the product of refinery maintenance and issues, which has been more dramatic in recent years,” the AAA said in a statement.
“This has subsequently meant less gasoline being produced and fewer supplies, which has squeezed prices higher,” the group continued.
As of March 3, the national average for a gallon of gas was $3.75.
Crude oil stocks rose for the sixth straight week to 377.5 million barrels, according to the Energy Information Administration – an arm of the U.S. Department of Energy. The sub-agency also reported that gasoline stocks fell to 228.5 million barrels in its weekly report ending on February 22, 2013.