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How did gas get to be $2 a gallon?


Experts point finger at OPEC, consumers

March 15, 2000
Web posted at: 1:23 a.m. EST (0623 GMT)

In this story:

Breaking down the price

Basic case of supply, demand

California is costliest at the pump

Less consumption could lower prices


SAN RAMON, California -- Gas prices here just blew through that imaginary $2-a-gallon limit.

Debra Sturmer shelled out $31 to fill up her Volvo. "This may be the last time I fill up this year," she says.

VideoCNN's Brooks Jackson looks at current U.S. gas prices in relation to prices of the past.
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VideoCNN San Francisco Bureau Chief Greg Lefevre investigates why California has the highest gasoline prices in the United States
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How did we get here?

Blame OPEC and ourselves, the experts say.

"As we have bought more and more SUVs and gas guzzlers, gasoline has been cheap for quite a few years," says Professor Severin Borenstein at UC Berkeley's Energy Institute. "That has pushed up demand."

Also, much of the present boost in prices came directly from the jump in crude oil pricing by the Organization of Petroleum Exporting Countries.

Breaking down the price

When crude sold for $11 a barrel, gasoline cost 26 cents a gallon. When crude increased to $32 dollars a barrel, gasoline sold for 76 cents a gallon -- a 50-cent increase.

Most Bay Area stations in California sell regular-grade gas for about $1.97 a gallon. Here's how that price breaks down:

  • 76 cents for the crude.
  • 59 cents to ship and refine it.
  • Taxes are a big factor, adding 40 cents for federal and state taxes, then another 11.4 cents in sales tax.
  • That leaves 10 to 12 cents for the station owner to pay rent, salaries, utilities -- and earn a profit.

    Basic case of supply, demand

    Dave Heck, manager of marketing and government affairs at Chevron, says the OPEC clampdown was easy to predict -- and the result easy to forecast.

    "When you start restricting production on one side and see demand increase on the other side, the only thing that can happen is for the prices to go up," Heck says.

    Americans, in comparison to those in other industrialized countries, are used to bargain-priced gasoline. And when price spikes come along, so do the howls of indignation.

    Jeff Nathan scowls as he fills up his company's van.

    "It's irritating," Nathan says. "I mean, when these people (the oil producing countries) have problems in their country, we fight their wars, and as soon as we get done fighting their wars, our gas prices go up."

    California is costliest at the pump

    Gas prices are going up worldwide, but within the United States, California takes the lead.

    Last fall, California Attorney General Bill Lockyear investigated accusations of price-fixing among California's oil producers. He didn't find any. But his report cited three major factors in the state's consistently high gasoline prices.

  • Lack of competition.

  • The state's requirement for cleaner-burning gasoline.

  • Taxes. California has the highest gas taxes in the country.

    Borenstein says it also has too few refiners.

    "There are only six producers, who produce a vast majority of the product we consume in California, and that ... reduced competition has led to exacerbation of the price spikes."

    There are also fewer places to buy gasoline. The actual number of filling stations in California has gone down by 14 percent in the last decade.

    Less consumption could lower prices

    So what is a consumer to do?

    Travel by other means, advises Professor Borenstein.

    "If people really want to affect the price of gasoline, they have to do so by actually consuming less," Borenstein says.

    Debra Sturmer says she might park her Volvo for a while.

    "This may drive me to use public transportation."

    Gas prices may not peak for weeks
    March 13, 2000
    European fuel prices even higher than those in U.S.
    March 13, 2000
    Survey: U.S. gasoline prices rising at record pace
    March 12, 2000
    High gas prices won't fall anytime soon
    February 24, 2000
    Rising oil prices: Washington listens as consumers squawk
    February 16, 2000
    Rising energy prices putting squeeze on consumers
    January 26, 2000

    Chevron Corporation
    Applied Precision - Biotechnology, Semiconductor & MicroPositioning Solutions
    American Automobile Association
    U.S. Department of Energy
      • U.S. Energy Information Administration
      • Kuwait
    United States Senate Committee on Energy and Natural Resources
    Organization of Petroleum Exporting Countries - OPEC - Web directory for oil and gas industries.
    Interstate Oil and Gas Compact Commission
    Global Oilfield & Petroleum Directory
    Lundberg Survey

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