Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
C. Between 1984 and 2004, U.S. Demand for Gasoline Increased Substantially,
Yet Average Annual U.S. Retail Gasoline Prices Remained Relatively Stable.
During the 1980s, U.S. gasoline consumption remained at or below the level of 1978,
when U.S. daily gasoline consumption averaged 7.4 million barrels per day. During the 1990s,
however, U.S. gasoline consumption rose steadily, from about 7.2 million barrels per day in
1990 to 9.1 million barrels per day in 2004.
A comparison of average annual retail gasoline prices and average annual retail gasoline
consumption in the U.S. from 1984 through 2004 shows that, in general, gasoline prices were
surprisingly low despite this significantly increased demand. As Chapter 1 explains, if gasoline
demand rises significantly, then gasoline prices also will rise significantly, unless producers
supply more gasoline that meets the increased demand. Producers’ supply responses were
among the factors contributing to relatively stable gasoline prices during this time period,
suggesting that U.S. refiners found cost-efficient means to meet consumer demand. This chapter
details some of the methods they used to do so, including expanding capacity and making
substantial investments in more efficient processes. The data also show increases in imports of
gasoline from 1992 through 2004 and relatively stable crude prices as factors contributing to
relatively stable gasoline prices.
D. EPA Estimates that Increased Environmental Requirements Have Likely
Raised the Retail Price of a Gallon of Gasoline from 4 to 8 Cents per Gallon
in Some Areas.
This chapter also reviews environmental requirements that have required significant and
expensive refinery upgrades, particularly over the past 15 years.
II. A VARIETY OF COSTS
CONTRIBUTE TO THE RETAIL
PRICE OF GASOLINE.
A. The Costs of Supplying Gasoline
to Consumers.
To supply gasoline to consumers, a
producer must acquire crude oil and transport it –
usually by ship or pipeline – to a refinery. The
refinery processes the crude oil into various
petroleum products, typically including motor
gasoline. See Box 3-1. From a refinery, gasoline
travels – usually by pipeline, ship, or barge – to a
distribution point known as a terminal that has
storage tanks and dispensing equipment, referred
to as “racks,” for use in transferring gasoline
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Box 3-1: Refining Gasoline
Refiners process crude oil into a variety of
products, such as gasoline, jet fuel, diesel
fuel, lubricants, and other refined petroleum
products. Demand for those products dictates
how refineries process crude oil. Motor
gasoline for transportation continues to
represent by far the largest share of the
refined petroleum products that U.S.
refineries produce – 39 percent of total
refined products supplied in 1978, and 44
percent in 2004, as measured on a daily basis.
See EIA, OIL MARKET BASICS, at
http://www.eia.doe.gov/pub/oil_gas/petroleu
m/analysis_publications/oil_market_basics/d
efault.htm (last visited June 28, 2005).
FEDERAL TRADE COMMISSION, JUNE 2005