Few answers to high gas prices

Supply and demand

Posted: Wednesday, August 17, 2005

WASHINGTON- Soaring gas prices are threatening to produce political headaches and dampen the nation's economic recovery, but neither the White House nor Congress seems inclined - or able - to intervene.


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Some questions and answers on the subject:

Q: Why are gas prices so high?

A: In short, there's a tight balance of supply and demand, and jittery traders worry the market will tighten even further. The latest gasoline surge, which saw prices at some pumps jump a dime a gallon overnight, was blamed on crude oil prices that peaked at $67.10 last Friday, and a string of refinery disruptions amid continuing strong demand.

Q: How high could prices go?


Q: What can the government do?

A: There is little either the White House or Congress can do that will reduce gasoline and other energy prices significantly in the short run, most analysts say. President Bush has said he wishes he had a magic wand to lower prices, but he has few options that would significantly increase crude oil supplies or reduce demand.

Q: Doesn't the government have an emergency oil stockpile?

A: The Strategic Petroleum Reserve contains nearly 700 million barrels of oil that could be made available at the rate of 4 million barrels a day, about a fifth of daily demand. Some congressional Democrats have urged Bush to use the SPR oil to try to ease prices. The White House says the oil is to be used only in response to a disruption of imports.

Q: The Energy Department is diverting oil to fill the reserve. Doesn't that add to the tight market and high prices?

A: The Energy Department has steadily been putting oil from federal fields into the reserve instead of allowing it to flow into the market. It will add another 700,000 barrels this month, bringing the total to the reserve's current maximum capacity. Administration officials say that amount of oil would have no significant impact on oil markets.

Q: What measures can be taken to reduce U.S. dependence on foreign oil and ease the supply-demand crunch?

A: Not much as far as today's high prices are concerned. But more than half of the oil is used by cars and trucks. Increases in automobile fuel efficiency, including a shift to more gas-electric hybrids is viewed by many as key to curtailing gasoline - and oil - demand. The Bush administration argues more domestic oil must also be produced including oil in the Arctic National Wildlife Refuge in Alaska. These are all long-term ideas.

Q: Are today's gas prices the highest ever?

A: Not when taking into account inflation. In March of 1981 regular grade gasoline cost $1.48 a gallon, which after adjusting for inflation, would be equal to $3.11 a gallon today.


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