| Q: |
Why are gasoline prices sometimes
higher in Oregon than in other states? |
| A: |
According to the Oregon Department of Transportation,
state gasoline taxes here are among the highest
in the nation – 24 cents per gallon.
Additionally, Oregon is one of only two states
that ban self-service gasoline, resulting in higher
labor costs at Oregon service stations compared
to stations in almost every other state. |
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|
| Q: |
How do Oregon’s gas
prices compare to those of other Western states? |
| A: |
Actually, as of the end of June, Oregon’s
average retail price for regular gasoline was over
nine cents below the average for the six Western
states according to the Automobile Club. The U.S.
Energy Information Administration (EIA) has reported
that prices in the Western states typically tend
to be higher than those of the rest of the country
due to unique market conditions, such as geographic
isolation from resources east of the Rocky Mountains.
|
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|
| Q: |
What determines the price
of gas? |
| A: |
The price of gasoline at the pump is ultimately
determined by the dynamics of the marketplace, essentially
by supply and demand and by competitive conditions.
Over time, the cost of crude oil and other factors,
such as the amount of state and federal taxes imposed,
fluctuations in consumer demand and how the various
gasoline marketers individually decide to respond
to market conditions also have an impact on retail
prices. |
| |
|
| Q: |
Why did gas prices here spike
so high earlier this year? |
| A: |
Prices went up nationwide this past winter, not
just in Oregon. The U.S. Energy Information Administration
(EIA) attributed the national increase to significantly
higher crude oil costs stemming from speculation
about the Iraqi situation, political unrest in Venezuela,
and higher demand due to an unusually cold winter
in the Northeast. |
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|
| Q: |
Well, regardless of what
you say, a lot of people believe that Big Oil is
charging high prices for gas because they have a
captive market – after all, we all have to
buy gas. |
| A: |
We’re sensitive to consumers’ concerns,
and of course have heard those allegations before.
But the fact is, the petroleum industry has been
investigated numerous times by various government
agencies, including the Federal Trade Commission
and the U.S. Energy Information Administration,
and has been consistently found NOT to have engaged
in illegal activities or anti-trust violations. |
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|
| Q: |
With the continuing political
uncertainty in Iraq and the rest of the Middle East,
don’t you think we’ll have gasoline
shortages and higher prices? |
| A: |
WSPA does not collect information concerning product
availability or price and does not attempt to project
future market conditions. But global conditions
do of course influence the markets for petroleum
and other products that are traded on a worldwide
basis. |
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|
| Q: |
There are those who say our
country’s dependence on fossil fuels is the
reason we went to war with Iraq. They say we shouldn’t
have sent our troops in to protect Big Oil. |
| A: |
WSPA has no unique insight into the Administration’s
motivations but believes that everyone is entitled
to have an opinion. |
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|
| Q: |
War issues notwithstanding,
there are a lot of people who believe we need to
reduce our dependence on fossil fuels if only for
environmental and public health reasons. What would
you say to that? |
| A: |
We support energy conservation and the more
efficient use of our products. Moreover, the petroleum
industry has been extremely successful in producing
cleaner, safer, more efficient fuels over the
last few decades and we’re understandably
proud of that record. Today’s cleaner-burning
automobile engines and fuels are dramatically
cleaner than those used only a few decades ago,
and will continue to improve. And the clean diesel
engines and fuels currently being developed promise
to deliver similar results for heavy-duty vehicles
like buses and trucks.
We look forward to being a part of an even cleaner
environment in the future. |
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|
| Q: |
Some legislators are calling
for investigations of the oil industry’s pricing
practices and profits. What do you think they’ll
find? |
| A: |
Politicians have called for similar investigations
in the past, every time gasoline prices have increased,
and in each case the allegations have been found
to be unsubstantiated.
This year alone, the results of 4 separate investigations
all reported that no evidence of wrongdoing or
illegal activity had been found. This included
a two-year investigation conducted by the Federal
Trade Commission at the request of Oregon Senator
Ron Wyden, which according to Platts Oilgram concluded:
“Unexpected gasoline price spikes in the
U.S. West Coast Market over the past two years
were the result of supply disruptions, not market
manipulation by oil companies…an analysis
of each time period in which pricing was outside
the predicted normal bounds indicated there were
‘natural causes.’”
These results are consistent with those of some
25 investigations conducted by the FTC, EIA and
others over the past several decades. While we
anticipate that our member companies will cooperate
fully with any future investigations, as they
have in the past, we expect a like outcome in
those investigations as well. |
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|
| Q: |
Why is it that gasoline
prices always increase faster than they go down? |
| A: |
That’s a common misconception. In a report
dated May, 2003, the EIA observed: “Consumers
sometimes perceive that retail gasoline prices tend
to rise significantly faster than they fall, a phenomenon
referred to as ‘price asymmetry.’ Actually,
retail gasoline prices follow wholesale prices…at
virtually the same speed upward as they do downward.
The idea that prices ‘seem’ not to drop
as fast as they rose appears to stem mostly from
consumers having a keener awareness of prices when
they are rising than when they are falling.” |
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|
| Q: |
But why do prices seem to
go up immediately when the price of crude oil rises,
but don’t come down as fast when crude prices
fall? |
| A: |
Again, a misconception. The same EIA report notes
that “retail gasoline prices do not move in
either direction as quickly as the underlying crude
oil and wholesale gasoline prices.” |
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|
| Q: |
Some dealers complain that
refiners are charging wildly disparate wholesale
prices to retail gasoline dealers. Why do some dealers
have to pay so much more than others? |
| A: |
Flexible pricing has long been a customary
and widely accepted business practice in many
industries – not only petroleum. Such pricing
typically takes into consideration factors such
as volume, long-term purchasing agreements, and
payment terms, to name a few. It is not unusual
for buyers who purchase high volumes to receive
a price break, for example, while those purchasing
relatively low volumes are ineligible for those
types of discounts. To illustrate, a meat supplier
might sell steaks at a lower price to a restaurant
that seats 500 diners than he would to one that
only seats 50, since he can sell far more steaks
to the larger one than to the smaller.
Government agencies such as the U.S. Department
of Energy have observed that the ability to offer
a variety of wholesale prices allows refiners
to respond to current local market conditions,
enabling them to remain competitive in certain
regions. It is also important to remember that
each dealer has entered into a voluntary business
arrangement with a refiner or supplier, and has
negotiated and accepted purchasing terms presumably
most favorable in those particular circumstances.
This is how a free market works. |
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|
| Q: |
How would you characterize
your industry’s first quarter profit reports? |
| A: |
Better than the first quarter of 2002, when
profits were very low due to a slower economy
and the impact of 9/11. When compared to all other
US. industries, petroleum industry profit margins
were slightly above the average for the first
quarter of 2003, according to data prepared by
Business Week, May 19, 2003. (8.0% for petroleum
versus 6.4% for all industries)
Over a five-year period for the petroleum companies
reporting, profit margins were about 5.5 percent,
which is average for all U.S. companies according
to Business Week.
Further: the U.S. Energy Information Administration
has investigated refinery profits on the West
Coast, and has determined that “in the West,
prices are higher, production costs are higher,
and refinery investment per barrel is higher,
but return on investment is about the same,”
that there is” adequate competition on the
West Coast,” and “refiner/marketers
cannot extract higher profits from consumers.” |
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| rev. 6-30-03 |
