As prepared for delivery
Press briefing teleconference on gasoline prices
John Felmy, API chief economist
Tuesday, February 26, 2013
Opening statement:
Good afternoon everyone. Thanks for calling in.
As of last week, the average U.S. retail price for regular gasoline was $3.78. This is 56 cents per gallon higher than 2 months ago. The increase, which amounts to $8 a week for the average household with two vehicles, burdens many family budgets, especially low-income families and families with earners unable to find jobs.
Understandably, people would like to know what’s behind the increase. They also would like to know what can be done about it. And, the good news is, something can be done about it thanks to technologies that are allowing us to produce more oil and also to consume it more efficiently.
The answer to the first question about why prices have been rising – at least most of the answer – is crude oil prices, which are largely set on international exchanges, determined by global supply and demand.
Crude oil prices increased $12 a barrel or 29 cents per gallon between December and February. Over that same period, gasoline prices rose by 56 cents per gallon.
Crude oil prices are up because there’s strong demand for world supplies. There’s more optimism about the global economy, which is beginning to grow faster and demand more oil, according to the Energy Information Administration’s short-term outlook.
Crude supplies, on the other hand, have been struggling to keep up with rising demand. While U.S. oil and natural gas companies have worked hard to boost domestic production – in January domestic crude oil production went above 7 million barrels per day for the first time in over 20 years – international production has been less robust.
Saudi Arabia slashed crude oil production by 700,000 barrels per day in the last few months of 2012, and output from Iran continues to be weak because of international trade sanctions on that state.
In addition to the influence of rising crude oil prices on U.S. gasoline prices, domestic gasoline markets have also had an impact. There have been unexpected refinery outages in January, both in the U.S. and in Europe, which has put downward pressure on supplies. Nevertheless, gasoline inventories are two percent above the 5-year average. Demand for gasoline also has increased. And, finally, the cost of ethanol, which is blended in virtually all gasoline to satisfy federal requirements, has increased.
Please also note that late last year margins for refiners, marketers and retailers had fallen well below average and, in some cases, were negative. So the increase in gasoline prices since December, while substantial, has not driven downstream margins to higher than average levels.
But, again, the U.S. can do to something to address higher prices.
First, we have very large oil resources here in the United States and technologies that are making more of them accessible and economic to produce. Given reasonable regulations, expanded access to resources on federal lands and waters, and fair tax policy, we can bring several million more barrels per day of crude oil to market. This could help reduce crude oil price volatility on global markets and put downward pressure on crude prices. It also could create more than one million new jobs, reduce our dependence on foreign energy, and increase revenue to the government by billions of dollars a year.
We have not done a good job of expanding opportunities for domestic oil and gas development in federal areas. The vast majority of the nation’s offshore oil resources continue to be off limits.
Second, we can encourage more global crude oil production. One way is for the United States to approve the Keystone XL pipeline, which would increase capacity for bringing Canadian oil into the United States, encouraging more production in Canada’s rich oil sands region.
Another way to encourage more global production is through sensible tax policies that create a level playing field for U.S. oil and natural gas companies that develop new prospects outside the United States.
Third, more efficient use of oil, especially as new, more aggressive vehicle fuel efficiency standards are phased in, could help moderate prices. Consumers also can help trim demand by consolidating trips, planning errands better and carpooling when possible – and by ensuring vehicle engines are tuned and tires are properly inflated. Finally, motorists can conserve by keeping speeds down. Lower speeds increase mileage and enhance safety.
The key to addressing gasoline prices is to increase supply and reduce demand. The U.S. should do more of both.
Thank you. For more information about gasoline prices, please visit our Energy Tomorrow website. Now, I’d be happy to answer your questions.