A Gusher of Price Hikes

Gas Prices Rise 10X Faster Than Inflation Increases Are Worst in Midwest Some Blame EPA Rules, Summer Driving

CHICAGO (CBS) The government is about to begin a major investigation of what's driving prices up and who's pocketing the profit.

This time last year, the nationwide average price was just $1.11 a gallon. Now, it's $1.56, a 44 percent increasemore than ten times the overall inflation rate. And an oil industry report released Friday says not to expect a turnaround anytime soon, reports CBS News Correspondent Cynthia Bowers.

In the Midwest, people are paying some of the highest gasoline prices in the country.

After gas prices jumped by 20 cents a gallon almost overnight in Columbus, Ohio, even some ministers sought divine intervention. For three straight weeks now, prices in the Midwest have gone up and upup more than 40 cents in Detroit since last month.

Tempers are flaring and fingers are pointing: What is going on with gasoline prices?

"There are about 7 or 8 factors, all of which are converging at one time," says Red Cavaney of the American Petroleum Institute.

Cavaney, CBS News Correspondent Jim Axelrod reports, blames the EPA and its new requirements for cleaner gasoline. In the Midwest, that means blending with corn-based ethanol, which is more expensive. And that's just for starters. There's supply problems, refinery problems and OPEC doubled the price of crude, all in less than a year.

But Tim Hamilton, who represents service station owners in Washington state, doesn't buy it. Big oil knew the EPA changes were coming for years, he argues, and they shouldn't act surprised now. "No one can seem to explain, after a hundred years, how they price gasoline. And I believe if they ever do explain, there'll be people going to jail."

The federal government has summoned nine oil companies to an unprecedented meeting Monday to explain why gas prices are so much higher in the Midwest and to determine if any price-gouging is going on.

"Prices shouldn't be this high; we want to know why," says Robert Perciasepe of the EPA. Ironically, it is the EPA rather than the oil companies that is feeling the heat.

That's because of new guidelines that require metropolitan areas from coast to coast to burn a cleaner fuel, called reformulated gas, or RFG. The EPA argues that a gas that costs only pennies more to make shouldn't cause prices to spike in only one part of the country. "We don't see these kind of price increases in other places where RFG is in use," says Perciasepe.

Amid the finger pointing, there might be a ray of hope: Some analysts say gas prices are now peaking in the Midwest.

"You could see gas come down to more like the nation's average, which is around $1.60," says Gary Ross of PIRA Energy Group, "not the kind of ridiculously high prices of $2.20 that you are seeing in the Chicago market.

OPEC ministers next meet on June 21st; they could boost supplies then. Or the EPA could ease up on new refining requirements and, say the oil companies, make it easier and cheaper to get gas to the Midwest.

"I don't care whose fault it is, it means nothing to me," says Steve Rabin.

For 27 years, Steve Rabin's medicars have been a lifesaver to Chicago's sick and elderly. Now he's laying off people and cutting back deliveries and wonders how much longer he can survive spiraling costs.

"I just wonder which price is going to be the last one to say, you know what, it's just not worth keeping the doors open any more," he wonders.

With so much at stake, the price of gas is likely to be a volatile issue at the polls as well as the pumps, which is why there is so much pressure for the federal government to find an explanationsoon.

http://cbsnews.cbs.com/now/story/0,1597,204498-412,00.shtml

-- Observer (lots@to.observe), June 10, 2000

Answers

He cpr,

What gives?

-- wonderin (whazzup@gas.prices), June 10, 2000.

hey wonderin,

to find up what gives, read the article, explains it there... pretty simple stuff really. and gas prices here in Phoenix have been dropping for the past several weeks... I pay only $1.35/gallon

-- Rob (celtic64@inficad.com), June 10, 2000.

In South Dakota, you can buy either regular unleaded, premium unleaded, or 10% ethanol. The ethanol gas (which has been available for many years) is ALWAYS the cheapest of the three.

If the price increase is because of a higher demand for ethanol gas in other states, why have regular and premium unleaded gas prices also gone up? And why is ethanol still cheaper than the other two here?

Monday morning==1.50 ethanol 1.51 reg. nolead 1.60 prem. nolead

Monday noon====1.65 ethanol 1.66 reg nolead 1.76 prem. nolead

-- Sam Mcgee (weissacre@gwtc.net), June 10, 2000.

rob

there is an am-pm @ bethany home & 23th ave @ $1.29

-- fauna (x@x.edu), June 10, 2000.

Still holding at $1.59 up in northern AZ. Didn't drop much from the high of $1.69. Before the earlier rise, it was $1.29.

-- Flash (flash@flash.hq), June 10, 2000.

Rob,

Actually I don't think the above article explains anything at all.

Here are some more tidbits to further confuse us ordinary people:

Opec fails to act as average crude price breaches $28/bbl

By Matthew Jones Published: June 8 2000 16:56GMT | Last Updated: June 9 2000 07:31GMT

World oil markets were thrown into confusion on Thursday when the Organisation of Petroleum Exporting Countries failed to lift output, despite the 20-day average price of the basket of Opec crudes breaching $28 a barrel.

Opec ministers made an informal pact in March to raise or lower output by 500,000 barrels a day if the 20-day average price moved outside the $22-28 a barrel range. On Wednesday Opec figures showed that the simple moving 20-day average of price of crude oils reached $28.08 a barrel.

But Ali Rodriguez, Venezuelan energy minister and current Opec president, on Thursday said an output increase would not be automatic.

"We have to be extremely cautious before taking this decision," he said in a television interview. "We have to observe if this is a short term phenomenon or if it will be sustained."

That the price band mechanism was shrouded in uncertainty had been pointed out by some industry observers. Writing for FT.Com, Robert Priddle, executive director of the International Energy Agency said this week that: "Even the Opec basket price is not transparent... The text of the 'gentleman's agreement' has never been formally released. So it is unclear whether the trigger for adjusting targets is 20 days of the daily average price or a 20-day average (or even 20 days of the 20-day average). The daily average came close to $22 in April and exceeded $28 in late May, as yet without prompting any action."

Analysts are critical of Opec's failure to clarify its policy and said the uncertainty was causing nervousness among traders.

"As soon as they get to the moment of judgment and truth the rules seem to change," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

Mr Gignoux added that it was still not clear to the market whether any output increase would be simply formal recognition of the cheating of production quotas or whether it would be new production volume.

Leo Drollas, deputy director of the Centre for Global Energy Studies, said the fact the price band had been breached at the upper limit had caught Opec members unaware.

"When the mechanism was agreed they thought an increase in output would be triggered by the price hitting the floor rather than the ceiling of the price band," he said.

He added: "We think there is a 60 per cent probability that there will be an output increase but it is by no means certain."

Mehdi Varzi, director of oil and gas research at Dresdner Kleinwort Benson, said it would have been a mistake for Opec to abandon a conscious decision-making process and that the decision could now be postponed until the forthcoming Opec meeting on June 21 in Vienna.

He said a large output increase was unlikely to be agreed because of signs that high prices were beginning to slow demand in the Organisation of Economic Co-operation and Development countries.

"Until there is an output increase the oil price will continue to rise in the near term. But whatever Opec does I certainly see a more balanced market in the second half of the year," he added.

In late afternoon trading on Thursday, the July contract for Brent blend crude on the International Petroleum Exchange in London was 18c up at $29.40 a barrel.

-- Observer (lots@to.observe), June 10, 2000.

observer,

opps, my mistake! I got your post and the one down a little bit from cave man on oil deplition mixed up.... but thnaks for the additional info!

-- Rob (celtic64@inficad.com), June 10, 2000.

Rob,

I certainly understand. Thanx for the tip on the 23rd & Bethany location. When I'm down that way I'll stop in and fill up. Providing the highway is open!

Best...

-- Flash (flash@flash.hq), June 10, 2000.

Observor, is targeting in, while the rest of us smucks can not phantom or reason. Gas prices are a going up, Bulls Eye. it may mean nothing but four more dollars to your local SUV neighbor, but it is going to mean a whole lot more to the trucker, who delivers the goods. Wake up and think! Why am I crazed with this task? And you can call me crazed, I have been called Lessor things, by Lessor people. I have been thrown out better places. Your call, on how you see an enconomy taking a downward spiral. I do not know why I was called to the task of warning others. I was born as penniless as a mouse, in this skin.

-- God, in some (Iife@time@riches.com), June 11, 2000.

Gas prices $1.79/1.89/1.99 in Silicon Valley. I'm surprised they're not higher and am wondering if maybe the pumps won't go to 2.00?

-- Flash (flash@flash.hq), June 13, 2000.