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6. Are oil companies price gouging? What is price gouging, anyway?
Price gouging is when companies take advantage of consumers by charging an unjustifiably excessive amount during unusual market conditions. It is often associated with emergencies, when supplies have been choked off.
There are no federal statutes barring price gouging. Antitrust statutes make it illegal only when companies collude to keep prices artificially high. Some states have laws against price gouging, and a few examples of gasoline price gouging were found in the aftermath of Hurricane Katrina.
U.S. Rep. Bart Stupak, D-Mich., introduced legislation to make price gouging in the oil business illegal, then narrowed it before passage last month to apply only during a federal emergency, such as a natural disaster. It would not apply to the current situation.
"The sentiment behind that question is, are prices at a fair level?" said the EIA's MacIntyre. "And there are many answers to that."
7. Why does gasoline cost more in some areas than in others?
Tom Kloza, of the Oil Price Information Service, writes that analyzing "average" national gasoline prices is like assessing the average temperature of the "old man with one leg in an ice bucket and one leg in a bucket of hot coals." The price can top $4 in north Chicago and be $2.80 in rural Texas.
Factors that contribute to regional price differences include distribution costs (the distance from the refinery); state and local taxes; unique fuel specifications, such as those required in California; and the kind of cost-of-living variations that influence every market -- rents, property taxes and economic vitality. Wholesalers also engage in zone pricing, charging more for gas in places where retailers are able to fetch more from customers.
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Within a region, pump prices vary for the same reasons the price of apples do: different supplier contract agreements; delivery volumes and frequencies; retail locations; and competitive activity. Owners differ in how much risk they're willing to take or how they can compensate. For example, some gas stations barely break even on gas in order to lure customers inside for soda and food.
For more, see this EIA primer.
8. Why do gas stations raise their prices when they still have the lower-priced gasoline in their tanks?
In every market, the cost of an item is the amount needed to replace that item, the "replacement cost."
Retail stations make very little profit on gasoline sales -- an average of 2 to 3 cents per gallon at convenience stores, which sell 80% of the nation's gas. They make less when prices rise, sometimes even losing money, and play a dicey game of chicken to compete for customers.
Gas stations do make money when lower-priced gasoline is left in their tanks. But they lose money when higher-priced gasoline is in the tanks as prices outside drop. With a check to the distributor for 10,000 gallons of product about to clear, they can't wait for the market to improve.
"The thing is, that gas will sit in the ground until we get more competitive," said Ren Gladu, owner of Ren's Mobile Service in Amherst, Mass. "It's dead money. . . . We want to sell that gas as quick as we can."
In the end, it's a wash, said Jeff Lenard, spokesman for the National Association of Convenience Stores. "When prices are going up, people are hanging out of trees with binoculars," he said. "But you generally don't get unsolicited hugs for dropping prices without a shipment."
9. Gas is $3.50 a gallon in many places. Surely we're cutting back by now. Are Americans, in fact, buying more gas than a year ago?
Gasoline demand for the four-week period ending May 18 was up 1.2% over the same four-week period one year ago, according to the Energy Information Administration.
That doesn't necessarily mean that individual drivers, particularly in regions with high gas prices, are driving more.
The average demand growth is 1.5% to 2% a year, attributable to the fact that there are more people and more drivers. There are also more people working, meaning more people who can afford to drive.
"There is a demand response to prices, it's just not a large one," the EIA's MacIntyre said. "What we do know is that at $3 a gallon we do start to see demand growth slowing."
10. Can the government really do anything about gas prices?
The free market generally responds more quickly than government controls to equilibrate prices. The government does have a role, however, in ensuring that a free, robust and legal open market exists. The Federal Trade Commission investigates allegations of abuse.
Tyson Slocum, director of the Energy Program at the Public Citizen, a consumer advocacy group, says today's domestic oil market is not adequately competitive.
A flurry of mergers in 1990s have restricted the market, allowing a handful of oil companies to make record profits without any pressure to reinvest in refineries, Slocum said. The companies are "swimming in profits," while captive drivers are left without any alternatives but to pay higher prices.
"Unless people have easy access to alternatives, they're just going to suck it up," he said.
The government could help consumers by imposing a tax on windfall profits, revoking federal subsidies to oil companies and re-regulating energy trading markets, he said,
"We're not talking about the production of yachts or diamonds," Slocum said. "We're talking about a commodity that is literally a fuel for our entire economy. To say that the government should not do anything to regulate this is suicide."
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