US EXPLANATIONS DIVERGE OVER HIGH GASOLINE PRICES

Bob Tippee

Two explanations of contrasting credibility emerged last month for why, beyond crude oil fundamentals, US gasoline prices are high.

One came from the Government Accountability Office, the other from the Kansas City Star.

GAO examined the boutique fuel trend in the US and concluded that the proliferation of specialty blends has increased gasoline prices and price volatility.

The agency identified 11 special blends—gasoline designed to reduce emissions of ozone precursors and meet oxygen-content specifications. The number jumps to 45 when various octane levels and other factors are considered.

GAO said its evaluation of pretax wholesale price data for 100 cities confirmed the tendency of special blends to increase fuel prices even as they improve air quality.

This comes as no surprise. Raising costs of production and logistics and lowering supply flexibility do raise prices.

But the explanation is useful at a time when most attention focuses on the elevated price of crude oil. Americans need reminders that some of their discomfort results from official policy.

Alas, too many Americans get their information about these subjects from stories like the one that ran on the front page of the June 26 Kansas City Star under this headline: "The Big Squeeze by Big Oil."

According to the long article, oil companies have driven up the price of gasoline by shutting down refineries.

"The US oil industry, wanting to drive up profits, shuttered dozens of refineries over the past quarter century," alleged a secondary headline. "And you feel the pinch at the pump every time you fill up."

The article didn't try to explain why refineries closed or accommodate its central allegation to refining capacity growth of the 1990s. It contained other internal contradictions too numerous to list here.

Oil company executives should read the article, though. It appeared in a serious newspaper because Americans in many places assume the worst about the people who sell them gasoline. In fact, they seem to want to believe the worst.

That should bother oil professionals. It helps explain why they're always grappling with the costly products of political mistakes, such as boutique fuels.

(Online July 8, 2005; author's e-mail: bobt@ogjonline.com)

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