How Big Government Raises Gas Prices

How "big government"raises gasoline prices


As we head into the Memorial Day heavy-driving weekend, gasoline prices are at a nominal record high in all parts of the country. The Energy Information Administration (EIA) said in its weekly review that inventories of gasoline declined fifteen percent during February, March, and April, the sharpest decline since EIA has been tracking such data. This reduction accompanied a high demand for gasoline, refinery shutdowns for maintenance as well as refinery breakdowns, such as the one in Whiting, Indiana, (still shutdown) which had been converting 400,000 barrels of oil a day into gasoline. No new refinery has been built in 30 years because of costly and changing environmental regulations, so any refinery shutdown causes supply crunches and price increases.

As a Chicago Tribune editorial pointed out yesterday, environmental regulations are partly to blame for gasoline's price increase because of all the Summer blends the Environmental Protection Agency (EPA) requires for major metropolitan areas such as Chicago. In Illinois, three blends are required: one for Chicago/Milwaukee/Northern Indiana, one for the St. Louis area, and another for the rest of Illinois. In addition, three separate octane grades are produced for each blend, making the total nine types of gasoline that are needed just for Illinois.

Gasoline taxes also increase as the price at the pump increases, since taxes are a percentage of the price. For instance, Illinois' tax is 9 percent, so at $2 per gallon the tax is 18 cents. However, at $3/gallon, the tax rises to 27 cents.



  1. Seems like analysts who predicted higher prices would lower demand are incorrect. Whether drivers will change their habits at some higher price remains to be seen. 


  2. It's shameful that lower income people are unnecessarily hurt by rising prices when America has abundant resources to tap - if only Democrats and environmental groups would let us access them. 

Background and links:

EIA forecasts that gasoline prices will remain about where they are now, possibly rising in late Summer when many Americans hit the road for vacations. However, there may be wide regional price differences. Read EIA's "This Week in Petroleum" every Wednesday.

Gretchen Randall can be contacted at: Winningreen LLC 3712 N. Broadway - PMB 279 Chicago, IL 60613 Phone: 773-857-5086



Copyright © 2007 All rights reserved.