Price controls not the way to meet U.S. energy challenges: API

Karen Matusic | 202.682.8118 | matusick@api.org

WASHINGTON – Rising gasoline prices are a burden on U.S. consumers but they should not be viewed in isolation from the U.S. energy situation and should not lead to federal price controls that could hurt consumers, API Chief Economist John Felmy told a House panel.

In testimony submitted to the House Select Committee on Energy Independence and Global Warming, Felmy said the oil and natural gas industry understands the frustrations consumers are expressing about gasoline prices and outlined the ways industry is working hard to meet the growing needs of American consumers.

“Price gouging legislation, by introducing price controls, interferes with normal market forces that can efficiently address supply/demand imbalances. History has demonstrated that price controls and allocations simply do not work,” Felmy said.

A competitive and healthy market, free of artificial restraints, is necessary to efficiently allocate supply and was critical to the post-hurricane recovery in 2005 when the higher fuel prices attracted additional supplies that eventually drove prices down.

The current run-up in gasoline prices is the result of a rise in crude oil prices earlier this year, record-high first quarter gasoline demand and a dramatic drop in gasoline imports that has pushed gasoline inventories to historically low levels, Felmy said. In addition, the annual switchover to summer-blend gasoline, required by EPA, results in a large inventory drawdown to allow refiners to meet regulations.

But the situation is improving. U.S. crude oil inventories have been building and are 8.9 percent above the five-year average for this time of year and year-to-date gasoline production is 8.85 million barrels per day, the highest ever.

“Thanks to the industry’s major investments in state-of-the-art refining technology, our companies are squeezing out more gasoline and diesel fuel from a barrel of crude oil this year compared to past years. Looking ahead, we expect to bring the equivalent of an additional eight new refineries into operation by 2011,” Felmy said.

Felmy Written Testimony
Size:  64 KB | Date: May 9, 2007 | License: Free

Felmy Oral Testimony
Size: 18 KB | Date: May 9, 2007 | License: Free

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