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MANY FACTORS AFFECT GAS PRICES

Many people have called our association office recently asking why the cost of motor fuel has increased in recent weeks. Part of the answer is that gasoline prices are driven by the price of crude oil, which has risen about $7 per 42-gallon barrel over the past two months. This is occurring nationally and internationally. Crude oil prices are driven by supply and demand, and recent demand for crude oil, both nationally and internationally, has exceeded the supply.

In this country an unusually cold winter in the East and Midwest created a demand for home heating oil. Not only did that draw down crude reserves, it diverted crude oil that would otherwise be available for gasoline.Here in Utah the five Salt Lake area petroleum refineries that supply most of the Utah market, two-thirds of the Idaho market and much of southwest Wyoming and eastern Nevada markets, have experienced a significant shortage in available sweet crude oil. This is occurring because Utah and neighboring states' crude oil production has significantly declined during each of the past several years. The seriousness of this shortage is heightened by the fact that Utah refineries cannot easily obtain foreign imported crude oil. Utah refineries depend upon Intermountain production that has seriously declined.

Another significant factor adding to motor fuel costs is the cumulative environmental demand for cleaner motor fuel. Federal and state environmental laws and regulations have forced the fuels industry to invest billions of dollars for compliance. These mandated costs must be passed through to gasoline and diesel consumers. Extreme clean air compliance laws in California, requiring the manufacture and use of reformulated gasoline has created a ripple effect through the country. Unfortunately this impact has occurred at the same time as the crude shortage. The Utah motor fuel market has been impacted by California's extreme environmental laws.

Jim Peacock

Utah Petroleum Association, Salt Lake City