September 5, 2012

What's to Blame for the Summer Gas Price Spike?

Bruce Yandle

Distinguished Adjunct Fellow
Summary

f we unlocked our known reserves, the United States would become one of the world's largest oil producers. Gasoline prices would head south. Instead of unlocking our supply of gasoline, Washington politicians responding to environmental concerns have cut it back.

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Americans paid higher prices at the pump over the last few days than during any previous Labor Day weekend. According to AAA, the average price of a gallon of regular self-serve gasoline hit $3.83 at the end of August, having risen for 49 of the previous 52 days. In January the average price was $3.29. That's 54 cents less than August's price. And remember that this is just the average price, not necessarily what real people pay in real places. 

Why such high prices? Are we back on the rising rails of the Great American Gasoline Scream Machine? Will we be battered by higher priced gasoline for months on end? I don't think so, but there are several key parts of the price puzzle to consider. Let's look at a few of them.

There's more going on here than just the raw forces of supply and demand. In August, drivers in Hawaii, California, Washington, and Oregon were shelling out more than $4.00 for a gallon of gas. But it wasn't always the same gas. As a result of EPA rules for improving regional air quality, there are some 17 different blends of gasoline sold across the country. When hurricanes and fires hit one of the specialized refineries or disrupt shipments, gasoline from elsewhere won't get the job done. 

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