Gas Prices: Up, Up and Away

18-Cent Weekly Hike Sets 15-Year Record

The steady increases in gas prices locally and and across the nation pushed up the average price of a gallon of gas by 18 cents in the past week, the biggest one-week jump since the Energy Department began compiling the data 15 years ago. The average national price of a gallon of regular was $2.55 yesterday, up 36 percent over a year ago.

Read the story: The Biggest Jump at the Pump (Post, Aug. 16)

Lon Anderson , director of public and government relations at AAA Mid-Atlantic, said of the price hikes, "We got the Discovery down safely; unfortunately, prices are stuck in orbit and still rising," in an interview with washingtonpost.com.

Anderson was online Tuesday, Aug. 16, at 11:30 a.m. ET to discuss rising gas prices and the effect on consumers and industry.

A transcript follows.

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Lon Anderson: Good morning everyone. Thanks for joining us. Lots of concern being expressed by AAA members and motorists generally about the unprecedented skyrocketing prices. On Friday we reported self-serve regular prices in the DC metro area were $2.42. By Monday we were reporting average prices of $2.54--a 12 cent jump in one business day--the largest we have seen since AAA began tracking gas prices during the Arab fuel embargo in 1974. We are in a whole new world of fuel pricing currently. So let's get started...

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Upper Marlboro, Md.: Seems like before every summer holiday the consumer gets short changed at the pump with extremely higher gas prices. Then by divine intervention, once fall comes the prices come down.

So, what is the true reason why we pay so much more for fuel during the summer months? Why not doesn't OPEC just anticipate higher demand?

Lon Anderson: Hey Upper Marlboro--great question. Fuel prices are generally linked to demand and each summer demand for gasoline increases significantly as America heads out on vacation with over 85% of trips being by automobile. So, we generally see price increases in the summer and price reductions in the fall when vacations end and driving is curtailed. The problem is everyone is currently producing close to maximum capacity. And during the rest of the year when driving is down demand for other petroleum such as heating oil can limit the ability of refiners to stockpile gasoline. We'll explain more in future questions but that's it in a nutshell.

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Silver Spring, Md.: How is it that the oil companies claim they are raising prices because crude is higher, yet they have been posting huge profits. It seems if the raw material is more expensive and you raise prices accordingly, you should have the same amount of profit instead of more.

Lon Anderson: Dear Silver Spring - It's amazing isn't it? Exxon Mobil just became the largest corporation in America in stock value, surpassing G.E. And quarterly profits for oil companies have never been higher. So while crude is certainly at record prices it's clearly posing no financial hardship for the oil companies. In some industries we might have to eat part of our profits when raw materials escalate in cost. Clearly the oil companies don't see any necessity in doing something like that. They seem only too happy to pass all increases on directly to the consumer.

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Washington, D.C.: ExxonMobil and other oil giants are earning record profits because of high gasoline and oil prices, yet Congress just passed an energy bill that gives the oil industry billions in tax breaks and subsidies. What can consumers do now to express their dissatisfaction with this backwards policy? How can they leverage their power?

Lon Anderson: Dear Washington, DC - I think you are on to something. If members of Congress and the White House hear from tens of thousands or millions of their constituents about these outrageous fuel prices there are certainly pressures they could bring to bear on OPEC and world crude prices. Seems like the silence from Congress and this administration is almost deafening! Perhaps if they hear from us this issue will rise on their agendas. Great Question.

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washingtonpost.com: AAA Mid-Atlantic

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Bel Air, Md.: This morning I heard that the Under Secretary for Energy, David Garman had an advice for motorists concerned with the high gas prices: Get used to them!

And the oil companies are reporting increases in profits by 50 percent on the average. I wonder if Garman's advice to them would also be: Get used to them!

Does AAA provide an avenue (via its Web site) for its members to vent their feelings, and perhaps sign a petition for some federal action? They do have some options, however symbolic; such as stop buying oil for the strategic reserves, or release some from the reserves.

Lon Anderson: Dear Bel Air - What a great message from the administration GET USED TO THEM? Why not a message from us: Do something about them. We agree with your sentiment and AAA Mid-Atlantic is currently considering how we can use our legislative action center to facilitate motorists contacting their members of Congress. Great question, you are on the right track -- politicians have little stomach for constituent outrage and the public should be outraged over these prices. Where is the new Gulf War or the fuel embargo or major supply disruption like a hurricane that usually precedes record prices? Skepticism is probably very healthy right now. Great question.

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Lacey, Wash.: I understand that it's been many years since new oil refineries have been built. True? If yes, then why is the oil industry not expanding its production capacity to produce gasoline, etc.?

Lon Anderson: Dear Lacey, Washington - 1976 was the last time a new fuel refinery went online in the United States. Experts tell us that with new environmental restrictions it would probably be impossible to get permits to build a new oil refinery in America. To expand our refining capacity we have just been adding on to existing facilities. Clearly something is wrong here and one suggestion has been to consider using closed military bases which in some cases are already polluted "brown fields" as possible locations for new refineries. Great Question.

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Escanaba, Mich.: Good afternoon.

I've studied Environmental Science and as high as gas prices are, Americans should be thankful it is not much worse.

The government subsidizes (directly and indirectly) the industry and if it weren't for that subsidy, the cost of gas could actually be what's called "full cost" -- around $6 a gallon!

Perhaps, these high gas prices are a good thing. Oil is most likely to going to run out in 50 years. With ever-increasing gas prices, perhaps the people will finally put pressure into finding alternative sources of energy. There is already one available and easy to make: ethanol. I don't understand why that is not being more widely distributed.

Thank you.

Lon Anderson: Dear Escanaba, Mich - With the new energy bill offering subsidies to the oil industry I think you may be partially correct. However, your major premise is incorrect. Let's be clear, developing and selling oil products is very profitable, especially right now and the government makes money on oil sales -- 18.4 cents per gallon for the federal government and as much as 25 cents or more per gallon for many states in the form of taxes on each gallon of gas sold. The high prices in Europe don't reflect the true cost of petroleum, they reflect much higher taxation to fund social and medical programs. That said, we certainly need to explore better use of alternative energy sources.

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Gaithersburg, Md.: As a long time AAA member, I would like to see AAA attempt to force the oil companies to open up their pricing schemes (which they consider proprietary) so consumers can decide where to buy gas based on lowest price if they wish. The government should take a hand in this as the oil companies basically have an oligopoly -- and management of such a market should be regulated.

Also, what is AAA's stance on the transportation bill? I'm all for metro going out to Virginia, but with the cost per passenger and the government even finding the project as having a "medium-low" return on the investment, aren't we crazy to spend the money on this project?

Lon Anderson: Dear Gaithersburg, MD - We agree with you. There is zone pricing and a lot of other black magic that distorts true market pricing of gas. More openness would likely yield some reduction in costs at the pump. You'll be happy to know that AAA Mid-Atlantic has been outspoken about this and will continue to be.

The second part of your question is also tough. The new transportation bill offers lots of possibilities for improving transportation locally. We share your concerns about the enormous expense of the Dulles rail as well as other rail projects in the region but don't see alternatives given that we have some of the worst urban congestion in the United States.

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Washington, D.C.: What is a good place to check comparative gas prices around the D.C. area?

Lon Anderson: Dear Washington, D.C. - Sure glad you asked that. Go onto www.aaa.com and visit the Fuel Price Finder Web site. This looks at gas prices from 85,000 gas stations nation wide and lets you do a search for the cheapest stations close to you. It's a great site and we encourage everyone to use it. Patronizing the cheapest stations and driving past the most expensive can send a strong message in the market place.

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Wheaton, Md.: Is it true that oil company's profits have gone up nearly 50 percent in recent months?

Lon Anderson: Dear Wheaton, MD - To quote the Washington Post's own figures "Exxon Mobil Corp. reported last month that it's second quarter profit was up 32%, to $7.64 billion." Royal Dutch Shell, another of the worlds largest oil companies reported similar profits. Oil prices have soared nearly 52% this year and in the Washington Metro area prices have risen nearly a quarter in the last 8 days.

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washingtonpost.com: AAA Web Site

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Washington, D.C: If your vehicle requires premium gas, will you do any damage to the engine by using regular?

Lon Anderson: Dear Washington, DC - While we generally recommend using the grade of fuel recommended by your manufacturer, many people will find no diminution in performance by using a lower grade of fuel. And you can save lots of money. There certainly will be no damage to your engine.

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Cleveland Park, Washington, D.C.: All this complaining rings a little hollow for me. Gas prices are still low on a historical basis -- meaning if gas prices had grown at the same rate as, say, people's incomes, we'd have even more expensive prices. When people bought 5,000 square foot homes in the suburbs, too far from public transportation, nobody promised them gas prices would remain low forever.

The only reason the government should intervene is if the price shocks start to drag the overall economy.

Lon Anderson: Dear Cleveland Park - I keep hearing this and it's wonderful propaganda to ease the pain of today's outrageous gas prices, but I don't buy it. I buy houses in today's real dollars, I buy bread and milk in today's real dollars and I'm buying gas in today's real dollars. The high costs in the past that are being used to justify inflationary costs of gas happened just a couple of times during the Arab Oil Embargo of the early 70's. Trust me, today's fuel is no bargain, no matter how you look at it!!!

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Sitting on the Beltway and I-270: I understand that there are many different blends of gasoline in the U.S. Why can't the federal government just mandate a few blends? Why would it hurt the rural areas to have gas that pollutes less? In the end, the price will come down as the refiners can be more efficient.

On that note, why does the government insist on subsidizing farmers with requiring ethanol in some places, which takes much more energy to refine, has fewer BTUs than gasoline, and pollutes more out of the tailpipe?

Thanks!

Lon Anderson: Dear Sitting on the Beltway - Hope your not typing behind the wheel! But great question. To improve air quality, the EPA mandated several different blends of gas for different parts of the country. This has caused an already tight refining capacity situation to become critical. You are correct that by reducing the 15 plus different blends currently required into just a few, we could improve our refining situtation significantly. Great question.

Your question about ethanol shows great insight. Ethanol appears to be a lot more about politics and farm economy than about America's fuel needs. 'NUF said.

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Columbia, Md.: Apparently everyone's checking out Full Finder at this moment!

Lon Anderson: Dear Columbia - Thanks for the great news that many are visiting Fuel Price Finder on aaa.com. If you are having trouble getting on Fuel Finder please be patient there is large capacity but it's a wonderful site that can help you identify cheap gas close to home, close to your vacation destinations and also incorporates fuel cost calculator to give you a very good estimate of your vacation fuel expenses based upon the size of your car and where you are traveling as well as access to AAA maps.

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washingtonpost.com: AAA Mid-Atlantic

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Washington, D.C.: Seriously, what do people want? Free gasoline? A regulated industry? Although the current semi-market-based economic model has flaws, any other economic model would, arguably, be worse. Until people set aside their prejudices (e.g., "evil robber barons"), we will not find solutions in alternative fuels or productivity increases.

Lon Anderson: Dear Washington DC - You make a great point but let's remember that just about 2 years ago OPEC cut oil production to stabilize the price of crude between 25 and 30 dollars a barrel which OPEC clearly thought was a fair price at that time. Locally, the current zone marketing allows companies to create artificial zones and set prices differently in those zones. So, someone who owns 2 gas stations just a few miles a part in Montgomery County can be forced to buy the same gas at 5 to 10 cents more at one station than the other. Doesn't make sense. Let's also remember that OPEC is a cartel that under American law is illegal. Can you imagine other corporate heads sitting down and setting prices for their products or agreeing not to produce to drive up the cost of their products? They'd be on their way to jail pretty quickly.

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Laurel, Md.: Can the jump in prices be attributed to the oil company consolidations? If so, why did the FTC let the mergers take place?

Lon Anderson: Dear Laurel - Interesting question. Perhaps to some extent consolidation has lessened competition, but the big issue driving prices right now is a very strong world economy that has seen countries such as China, Korea and Japan import much larger quantities of fuel, while our economy is also roaring along with commensurate high use of fuel. This has created a supply crunch on the world market. That said, we have had other tight supply situations that have not driven fuel prices to these levels so some skepticism about all of the explanations is probably healthy. We have no new Gulf War, no hurricane devastating the Gulf Coast or major refineries out of commission...

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Fairfax, Va.: A. What's the difference between Lowest Price and Shell?

B. Is the difference between 3 Shell's in a 4-mile radius, the different blends or what have you?

--I noticed that I received better gas mileage at one Shell station, than I received at another--

Lon Anderson: Dear Fairfax - While there may be some difference between brands of gas, generally speaking those differences in spite of all the marketing are relatively minor. The most important issue is buying the correct grade of gasoline for your engine -- that recommended by your cars manufacturer. Buying cheaper gas will not hurt your car.

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Fort Washington, Md. "Get use to it". Didn't Marie Antoinette say "Let them eat cake." when France didn't have bread? So much for a kinder gentler nation.

Everyone needs to contact their senator and representative at the state and federal level.

Imagine how gas prices affect people who live in rural areas and people on fixed incomes. Some of the surplus that local and state governments received on real estate taxes will now be spent on increased gasoline.

Lon Anderson: Dear Fort Washington - Interesting sentiments indeed and we do agree that politicians need to hear from motorists upset with today's prices. Just wait for this winter when you have to fill up with heating oil, it could make your trip to the gas station pale in comparison. Thanks for the suggestions and keep watching AAA's Legislative Action Center - we hope to make it easier to contact your member of Congress about this critical issue.

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Lon Anderson: This has been great everyone. Sorry our time is up but hopefully you found this discussion invigorating and interesting. Remember to shop with your steering wheel for fuel and when possible use credit cards that offer a discount at the pump to buy your gas. We hope you won't have to carry the smelling salts with you to the gas station much longer.

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Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.