What Makes Gas Prices Continue To Rise?

Why does a gallon of gas at the pump cost an average of $3.93? Why might it soon hit $4? Robert Siegel asks Robin West, the chairman of PFC Energy, an energy consulting firm.

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ROBERT SIEGEL, HOST:

Gasoline prices are complicated. They rise and fall for lots of reasons, including the season. They also fluctuate both because of and sometimes despite the price of oil, which itself rises and falls in response to both real life events and also fears and rumors of events to come. Gasoline is a product that we both import and export. As I said, this is complicated.

What can be stated very simply is that a gallon at the pump now averages $3.93 and it could soon hit $4. Why? Well, we're going to ask Robin West of PFC Energy.

Welcome to the program, Mr. West.

ROBIN WEST: Thank you.

SIEGEL: And, first, can you address the seasonal dimension of this? Why should early April be a time of relatively high gasoline prices?

WEST: Well, usually, early April is not a time for high gasoline prices, but what's happened is that due to a fear of potential instability in the Persian Gulf around Iran, is that the price of oil has been bid up. And, as a result, the fundamental commodity, oil, is unusually high early in the season.

SIEGEL: Early in the season. Now, I read an Associated Press story today, which said that we're coming off the time of year when our refineries typically either shut down or slow down to do annual repairs and maintenance and so refinery capacity is slow. Does that make sense to you?

WEST: Yes. There's some tightness from that, as well. Again, the usual cycle is the summer driving season and the industry has to get ready for that. You can't run refineries all the time. And so, the annual maintenance cycle combined with the high commodity price is really what's driving some of these factors.

SIEGEL: Now, it's been reported with great significance that the U.S. now exports gasoline, even as it continues to import. The U.S. petroleum production and refining is up. Does that just mean that U.S. exporters get to profit more when prices are high or does the level of domestic refinery and production have any effect, holding prices down here in this country?

WEST: What's happening is that everything's changing in the United States. Demand is falling and the way our system was organized, basically, is you had refineries on the coast when we imported a lot of crude oil and then you moved the refined products from the refineries on the coast to the heartland.

Now, what's happening is you're producing a lot of oil in the heartland. It's surging in places like the Dakotas and now the oil is starting to flow to the coasts. And you have some refineries, such as some old East Coast refineries, are being shut down. So, as I say, everything's changing.

SIEGEL: But should one of the changes, at some point, be lower gasoline prices at the pump?

WEST: I think that one of the key things is going to be a lot of logistics. We need new pipelines. That's why this Keystone XL pipeline was proposed. The way to bring prices down is to be able to efficiently serve markets and, right now, you really can't do that. We have trouble moving petroleum products from the Gulf Coast up to the Northeast. That's one of the reasons why costs are higher in the Northeast.

The more efficient and transparent you can make these markets, the lower prices for everybody.

SIEGEL: Well, Mr. West, thank you for talking with us.

WEST: Thank you.

SIEGEL: That's Robin West, who is the chairman of PFC Energy. He's in Washington, D.C. That's an energy consulting firm.

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