Q&A: Gas prices
Share with others:
A: Last week, prices for regular grade averaged $2.94 a gallon nationwide, a 23-cent increase in two weeks and 68 cents higher than a year ago. And prices in many areas such as the West Coast and Mid-Atlantic states are exceeding $3 a gallon.
However, gasoline still costs less in the United States than in many European countries. And taking general inflation into account, it is slightly cheaper than what motorists paid in March 1981 in the aftermath of the Iran hostage crisis. Then, gas cost $1.41 a gallon, or $3.12 in 2005 dollars.
Q: Why have prices been going up lately?
A: Mainly because crude oil costs have soared, briefly reaching $75 a barrel, a third higher than a year ago. More than half of every $1 motorists pay for gas goes to the cost of crude. Gasoline supplies also have been tight because refiners shifted additives under government orders, using more ethanol. Ethanol prices have jumped 77 cents a gallon to $2.77 since December because of increased demand. And refiners are reaping record profits despite the high cost of crude.
Q: What's behind the jump in crude oil prices?
A: Mainly market jitters about a potential cutoff of oil from Iran over a nuclear standoff and political tensions in the Middle East as well as in Nigeria and Venezuela, both major oil producers. The absence of substantial oil exports from Iraq has added to tight global supplies.
Q: What about the growing demand for oil?
A: The growing economies of India and China are causing a global increase in demand for oil. Also, the United States, which consumes a quarter of the world's oil, has shown little sign of easing demand despite high prices. With the world consuming 85 million barrels of oil a day, analysts say there is only about 1.5 million barrels of day of spare production capacity -- almost all in Saudi Arabia.
"It's sort of Economics 101," says Al Hubbard, the president's economic adviser. "The demand for fuel and gasoline has been ... growing dramatically and the supply has not been growing as rapidly."
Q: What can President Bush and Congress do?
A: Very little in the short term. Mr. Bush has said the country needs to move away from its addiction to oil. But developing alternatives such as hydrogen fuel cells for transport is decades away. Hybrid gas-electric cars still represent only a small fraction of car sales and supplies of corn-based ethanol -- a substitute for gasoline -- is limited. The cost-effective development of cellulostic ethanol is still under research.
First Published April 26, 2006 12:00 am
