A new report from the Consumer Federation of America (CFA) blames higher gas prices on major U.S. oil refiners creating tighter markets.
The report looks at why gas prices continue to rise despite declining gasoline consumption, high inventory levels and increased production of ethanol.
“For half a decade the major oil companies have exercised their market power,” said Dr. Mark Cooper, research director of CFA and author of the report. “In response to record high prices, consumers are cutting their consumption and lower priced alternatives, like ethanol are expanding supplies. But these market responses are being counteracted by high crude prices driven up by speculators and reduced oil company refinery runs.”
The report notes that ethanol is one of the key factors affecting the gasoline market.
Today, two-thirds of all gasoline sold in the U.S. is blended with ethanol. However, the use of ethanol still falls far short of the maximum allowed for conventional engines. If all gasoline sold were blended to 10 percent ethanol, ethanol use would be 40 percent higher than it is today. Such an increase would equal over 200,000 barrels per day and production capacity is projected to increase by almost that much in 2008,14 which reinforces the fact that the primary structural factor that may alter the domestic situation in the near term is the supply of alternative fuels, rather than recession driven changes in demand.
Cooper calls on policy makers “to shine a spotlight on the industry so it does not cut back on refinery runs to tighten the market, and they need to ensure that the 2007 “Energy Independence and Security Act” is implemented vigorously since it emphasized the two key long-term elements that can help consumers escape from the grip of both the domestic refining oligopoly and the crude oil cartel – expansion of alternative fuels and reduction of demand through increased fuel economy.”