Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
sources of gasoline supply can affect both the averages and the variability of gasoline prices in
particular communities.
A. Access to Refineries Can Affect Gasoline Prices.
The following examples reveal how access to nearby refineries can affect gasoline prices.
The examples illustrate price effects that differ depending on whether a region has limited or
ample nearby refining capacity.
1. In the Upper Midwest, where refining capacity is not sufficient to
meet consumer demand, two refinery fires in the spring and summer
of 2001 caused wholesale and retail gasoline price spikes.
Refining capacity in the Upper Midwest is not sufficient to supply consumer demand in
that region. Thus, the Upper Midwest (e.g., Chicago and Milwaukee) must obtain and transport
some gasoline from outside the region. In the event of a supply shortage, Upper Midwest gas
stations must seek additional gasoline supplies from more expensive – typically, more distant –
sources. To respond to a supply shortage in the Upper Midwest, distant refiners may need to
change their product mix to make more gasoline (instead of other refined petroleum products) or
pull product out of other markets to supply the Upper Midwest. Such gasoline then needs to be
transported to the Upper Midwest. This process overall tends to increase costs and can take
weeks.
In the spring and summer of 2001, two separate refinery fires shut down significant
refinery capacity in the Upper Midwest. On April 30, 2001, a fire at the Tosco refinery in Wood
River, Illinois, reduced output from the refinery for a few weeks. 2 This refinery outage caused
the wholesale and retail price of gasoline in the Upper Midwest to increase at rates faster than
other regions in the spring of 2001. During this supply restriction, for example, wholesale
gasoline prices in Chicago increased up to $0.30 per gallon relative to those in the Gulf Coast. 3
Prices returned to normal in mid-June, after the refinery had been repaired. 4
In August 2001, a fire at the Citgo Lemont refinery near Chicago damaged a crude
distillation unit, reducing output from the refinery for more than six months. 5 This time,
wholesale prices in Chicago increased as much as $0.40 per gallon relative to the Gulf Coast, but
returned to normal by mid-October, as gasoline consumption declined at the end of the summer
driving season, and pipeline supplies increased. See Figure 4-1.
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FEDERAL TRADE COMMISSION, JUNE 2005