SEMA eNews Vol. 10, No. 24, June 14, 2007

WHY GASOLINE PRICES WILL STAY HIGH

Gas prices are averaging $3.20 across the United States, and the cost for a gallon of gasoline is likely to remain high. Lynn Westfall, chief economist for Tesoro, recently told BusinessWeek that consumers have already spent $20 billion more on gasoline this year than last—a considerable dent in their disposable incomes.

Tesoro is a major gasoline distributor, owning a half-dozen refineries and 278 Shell gas stations. Oil prices and refinery capacities continue to push gasoline prices up. Westfall says the jump of crude oil from $30 to $70 a barrel has caused spikes in fuel costs since 60%–70% of gasoline costs is the cost of crude oil.

Tesoro said that some of its refineries were down this spring while gasoline demand continues to grow at a rate of 2.5 refineries every couple of years. Westfall told BusinessWeek that they simply cannot build additional refineries because it costs $32 billion to build one in the United States. In the meantime, he says that growing demand for gasoline will continue to drive the price of gasoline higher, and he does not expect the problem to be resolved any time soon.

Source: BusinessWeek (June 4, 2007). “Why Gas Prices Will Stay High.” Retrieved June 8, 2007 from www.businessweek.com.