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Explaining Painful Prices At The Pump

From July 26 to Aug. 12, the average spot price of gasoline jumped by 40 cents per gallon, averaging nearly $2.04 per gallon as of Aug. 12.

Washington DC (UPI) Aug 19, 2005
Drivers feel the pain when filling up their tanks as prices at the pump have dramatically increased over the past few days, but though there is an explanation for rising prices, little can be done about it in the short-term.

Throughout the United States, prices at the pump rose at least 10 cents per gallon, with some regions seeing an increase of more than 20 cents per gallon. Several states recently hit the $3 mark.

Retail gasoline prices between Aug. 8 and Aug. 15 reached their peak since the Energy Information Administration instituted its weekly retail price survey in August 1990.

"Almost every driver experienced a shock last week when they went to fill up their car or truck," the EIA reported.

Industry experts say there is little the government can do in the short-term about prices, increasing crude oil supplies or reducing demand.

The emergency oil stockpile known as the Strategic Petroleum Reserves contains some 700 million barrels of oil that is to be used in response to supply disruption. Although President Clinton used the SPR to alleviate strains on demand, the current administration has determined the situation does not yet require such action.

The administration says the amount of oil the Department of Energy is using to fill reserves has no significant impact on oil markets. For August, the Energy Department will add another 700,000 barrels.

Soaring prices do follow "recent increases in the spot price (the price at which refiners and importers sell into the wholesale market) for gasoline," the EIA said.

From July 26 to Aug. 12, the average spot price of gasoline jumped by 40 cents per gallon, averaging nearly $2.04 per gallon as of Aug. 12.

"With retail prices up about 25 cents per gallon over the last two weeks," the EIA said, "it is likely that retail prices rise further over the next few weeks, assuming no significant change in the spot price of gasoline over the next several days."

But this leads to the question why the spot price of gasoline rose so sharply. The rise is partially due to recent increases in crude oil prices. As gasoline prices rose by 40 cents, the price of West Texas Intermediate crude oil, the grade to which most U.S. crude oil is benchmarked, increased by $7.66 per barrel, or about 18 cents per gallon.

Recent refinery outages also helped increase spot gasoline prices as demand goes up during the last few weeks of the summer. Refinery outages throughout the United States affected the amount of gasoline that can be produced.

"With this occurring at the same time gasoline demand is at its seasonal peak, every gallon of gasoline has become that much more expensive," the EIA said.

With an increase in crude oil prices and refinery outages reducing the supply of gasoline, higher prices at the pump is the effect.

Traders are also jittery over more possible refinery outages and attack on energy infrastructure.

"Traders and speculators have driven up the price of crude oil and gasoline over concerns about continued high demand in the face of refinery outages and international terror issues," Auto Club spokeswoman Carol Thorp said.

"Prices are likely to continue to increase over the next few weeks, but may drop some after Labor Day, as gasoline demand typically falls once people go back to school and work," the EIA concluded.

But this assumes refineries will return to normalcy again and other factors do not impede crude oil production. For the next few weeks, consumers will continue to experience pain at the pump every time they fill up, leading some drivers to leave the gas-guzzlers at home until prices begin to drop again.

Other countries facing a similar problem are trying other things.

France is suggesting adding more tax at the pump to deal with rising prices. The government has proposed that some of the fiscal revenue would be redistributed to those most hurt by price hike, along with employers and French workers.

"Concerning the next budget, I have asked (Economy Minister) Thierry Breton to increase current tax credits in favor of clean cars and the purchase of heaters which use a renewable resource," Prime Minister Dominique de Villepin said Tuesday.

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