AUDIO INTERVIEW & ARTICLE: Gas/Oil Price Nexus Demystified

By Dave Gahary

To find out why prices at the pump skyrocketed in the two weeks leading up to the heavily-traveled Thanksgiving holiday week, although oil prices declined and stagnated for the prior three months, AMERICAN FREE PRESS conducted an exclusive interview with former news reporter Gregg Laskoski, a senior petroleum analyst for GasBuddy.com, “a network of websites that gives consumers all across the country access to the lowest-priced gasoline in their neighborhoods…anywhere in the United States or Canada.”

This reporter asked why with oil prices dropping two weeks before Thanksgiving gas prices were starting to move up.

“There were four refineries that were of a significant size [that had] problems . . . all found in the Gulf Coast,” he explained. “And these aren’t small refineries. One of them is the largest in the country that does 600,000 barrels a day, and when you take that off-line, it has an impact.”

“The other issue that really wasn’t discussed very much by the media,” he explained, “was the fact that there’s been a tremendous increase in exports and people don’t realize how that can impact the price at the pump. When the export demand goes up significantly it creates a significant problem in the U.S., because any gasoline or any cargo that is shipped from one port city to another U.S. port city, has to be done using a U.S. flagged vessel. That was a federal law that was enacted in the 1920s . . . called the Jones Act.

Laskoski explained that “excessive regulation and the shortage of U.S.-flagged vessels” are contributing to the rise in gas prices.

The Jones Act “can work against us these days when you see a tremendous demand for exports because when vessels are sending that fuel to Central America or South America or even West Africa,” he explained, “believe it or not, it’s actually cheaper for those ships to deliver that fuel to those distances than it is to go from Houston to Tampa.”

The U.S. even exports its oil to Europe.

According to Laskoski, this is largely due to costly and onerous regulations that make transporting oil via trains and trucks more costly than shipping it overseas in supertankers.

Laskoski explained further the federal and state governments’ culpability in the price rise.

“The federal government mandate[s] something called ‘summer blend gas’ that has to be sold from May through September,” he explained, “and that gas is more expensive to produce because it has additional additives and those additives are put in the gas to let the gas burn cleaner during the summer months. Everybody pays federal and state taxes on gas,” as well, he explained.

The federal tax is currently 18.4¢ per gallon, but state taxes vary widely.

“The refineries have to reduce their inventory of ‘winter blend gas,’ and then before they start their production of ‘summer blend’ . . . they usually schedule their annual maintenance sometime around January, February or March,” said Laskoski. This creates tighter supplies nationwide, because “all of the refineries in the country are basically involved in the same process at approximately the same time.” That’s why “every year starting in the first quarter of the new year, you’re gonna see gas prices go up like clockwork, whether you’re on the East Coast or the West Coast or any other place in between.”

There are approximately 150 “vastly different” refineries in the U.S., with some “over 100 years old,” he explained.

Prices continue to rise despite the fact there is a current bull market in oil production across the planet.

“We’re finding out now that there’s more crude oil all around the world being discovered, in Mexico, in the Gulf of Mexico, in West Texas, crude oil up in the Dakotas, in Alaska—even in Australia they’re discovering tremendous reserves of crude oil that people never even knew existed,” he said. “And, of course, you still have a great deal in the Middle East. There’s a great deal in Russia and in Canada.

“In the United States we’re in the midst of a domestic energy boom,” he continued. “We have a tremendous amount of new less-expensive crude, and it’s becoming available and distributed into parts of the country that never before were able to use it, [which is] one of the things that could actually bring the price of gas down a couple of years from now.”

Laskoski believes that these trends will likely make the U.S. the largest oil producer in the world in the next maybe five or six years.

“We’ll be producing more oil than Saudi Arabia,” he said.

“We’re also starting to see that this new domestic production occurring in the United States is having an impact on some of the OPEC [Organization of the Petroleum Exporting Countries] pricing, that global prices are starting to come down,” he said.

Laskoski warned that increased speculation on crude oil prices could mean trouble for U.S. consumers, especially those squeezed during these trying financial times.

In July 2008, gas hit its all-time record high at $4.12 a gallon. Laskoski said that this was not “because people were driving more. We were driving less than we did in the previous year, but we were paying $4.12 a gallon because a tremendous amount of speculative dollars were being pumped into commodities.”

With the energy boom in the U.S., speculators are looking to reap massive profits off oil markets.

“Investors look to the commodities market as a hedge against the weak dollar, so that’s something we always have to be watching,” he explained.

Dave Gahary, a former submariner in the U.S. Navy, is the host of AFP’s ‘Underground Interview’ series.

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