Price chiselling by oil companies do not cause high gas prices in Midwest

Jul 06, 2000 02:00 AM

High gas prices in the Midwest have three causes, and price chiselling by the oil companies isn't one of them, a Cato Institute energy expert told Congress. "No single oil company has enough market power to significantly affect retail prices, and there is absolutely no evidence of collusion," said Jerry Taylor, Cato's director of natural resource studies. Instead, Taylor says, high gas prices in Chicago and Milwaukee can be traced to OPEC production cutbacks, the breakdown of pipelines serving the region, and regulations requiring the sale of more costly "reformulated" gasoline.

The price of gasoline in the Midwest has risen by slightly more than $ 1 per gallon over the past year. OPEC production decisions alone account for 48 cents, or nearly half, of this price increase, Taylor says. The failure of two gas pipelines, which has necessitated shipping gas to the Midwest by the more costly means of trucks and barges, is responsible for another 25 cents, he says. And regulations forcing gas stations in the Midwest to sell only ethanol-blended gasoline, an expensive fuel sold nowhere else in the nation, accounts for yet another 25 cents of higher pump prices.
"We know all we need to know to explain the supposed mystery of retail gasoline prices in the Milwaukee/Chicago area," Taylor says. "While the government can't take the blame for -- or do much about -- three-quarters of the price spike, it can take steps to address the 25 % price increase due to environmental regulatory mandates."
Among Taylor's recommendations: that Congress repeal the reformulated- gasoline mandate, which "accomplishes absolutely nothing in the way of air quality," he says. Fuel-injection systems now automatically adjust fuel-air mixtures to control emissions, he says, successfully doing through technology what the reformulated-gas rules attempt to do through regulatory fiat.
At the very least, Taylor says, pundits and politicians should dispense with the obviously false charge of price gouging by the oil industry. "If oil companies have enough market power to gouge consumers at will, why have they waited until this year to exercise that power?" he asks.

The Cato Institute is a neutral public policy research foundation dedicated to broadening policy debate consistent with the traditional American principles of individual liberty, limited government, free markets, and peace.

Source: Cato Institute
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