American Independents Take on Gasoline Prices

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For Immediate Release
March, 23 2012

WASHINGTON – This week, President Obama made his way around the nation, taking his “all-the-above” energy agenda along for the ride. After visits in Nevada and New Mexico, the President made his way to Cushing, Oklahoma—otherwise known as the pipeline crossroads of the world.  At times referred to as the “spiritual capital” of American oil, Cushing is a hub of oil activity. Holding 5 to 10 percent of U.S. oil inventories in local storage tanks, this small town is the price settlement point for West Texas Intermediate on Wall Street, helping to set the global price of oil. So as American consumers face average gasoline prices of $3.88/gallon, it comes as little surprise that the President would make Cushing, Oklahoma a high priority pit stop. 


As the President touted in his speech, “We are drilling more. We are producing more. But the fact is, producing more oil at home isn’t enough to bring gas prices down overnight.” While the President failed to acknowledge his administration’s political actions that have helped these prices escalate, including the reduction of oil and natural gas production on onshore and offshore federal lands, he is right that more drilling will not be an overnight fix to high gasoline prices.  Yet the continued advancement of American oil production is providing and will continue to provide real and tangible economic benefits for the American people, while increasing the supply of American energy and reducing vulnerability to global oil supply shocks. 


As American consumers face pains at the pump, IPAA’s independent oil producers – small businesses with an average of 12 employees – are trying to help. But to do so, America must have a comprehensive energy policy that not only addresses these issues, but encourages the American oil production that has a direct effect on jobs, economic revitalization, and energy security. To set the record straight, and supply the facts, the Independent Petroleum Association of America (IPAA) dedicated its weekly Declaration of Independents to analyze how gasoline prices are affected by American oil and natural gas production, development, and infrastructure. Here are some of the highlights:


Increased U.S. production does lower price of oil—regionally. American oil production has helped lower the price of many of our domestic crude streams in comparison to internationally-priced Brent and other imported grades. Because of increased U.S. oil production, mid-continent refiners have seen lower costs for increased domestically-supplied inputs, while East Coast (and Caribbean) refiners have largely been faced with the higher cost of imported foreign crude oil.


Infrastructure matters.  Consumers geographically farther from the source of production are likely to pay more because of the higher cost of transportation and the need for more storage terminals to buffer fluctuations in shipments along the lengthy supply chain. The East Coast accounts for over 36 percent of U.S. gasoline consumption, but with relatively few refineries, the region only accounted for 7 percent of refinery runs in 2011. This may help explain why retail prices in the high-demand, refinery-poor Northeast, even after adjusting for differences in taxes, are higher than on the Gulf Coast, where roughly half of the nation’s refinery capacity operates.


U.S. Oil Production Builds a Healthy Economy. Gains in American oil production have been an outstanding development for the United States – they have helped to reduce U.S. petroleum imports and increase U.S. energy security in a world where access to reserves is becoming more limited and where an increasing share of available supplies are being redirected for consumption elsewhere.


While increased drilling may not equal direct major decreases at the pump, hitting our nation’s energy producers hard with increased taxes and burdensome regulations will certainly make producing – and consuming – American energy more expensive. This results in lost jobs and investment in the American economy, makes us more reliant on foreign imports and increasingly vulnerable to an oil supply shock.