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On fluctuating gasoline prices and American independence

By Jeff Flock
CNN Chicago Bureau Chief

June 29, 2000
Web posted at: 11:42 a.m. EDT (1542 GMT)

This news analysis was written for CNN Interactive.

Some signs of the times in Chicago  

In this story:

Demand for supply

No one wants to wear a sweater, either


CHICAGO (CNN) -- Last week I drove by a gasoline station that was advertising $2.99/gallon premium at the full-serve pumps. This week gasoline prices, which have set record highs in the Chicago area, have begun to inch back down.

Why? The experts do not seem to have better answers for why prices are going down than they did for why prices here went up so high in the first place. At one point, gasoline prices in the Chicago area were averaging 50 cents higher than the national average, according to AAA Motor Club.

It is "price gouging by the oil companies," said U.S. Rep. Jan Schakowksy, an Illinois Democrat.

"Nonsense," said David Sykuta of the Illinois Petroleum Council, who pointed to new EPA-mandated cleaner-burning gasoline as a cause for higher costs.

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Reformulated gas should only cost "an extra 5 to 8 cents" per gallon, said Bob Perciasepe of the Environmental Protection Agency.

And on and on. Blamed for the hikes have been everything from pipeline problems to low supplies to high crude oil prices.

Demand for supply

About the only part of the equation not widely blamed for high prices: the people buying the gas. Some analysts think, however, that consumers are the biggest part of the problem.

"Let's face it. It's history repeating itself," said Phil Flynn, an energy analyst with Alaron Trading, recalling the mid-1970s oil crisis. He pointed out that just before that crisis, as now, Americans were in love with big, gas-guzzling vehicles.

He likened the popularity of sports utility vehicles, vans and pickup trucks, with their lower fuel economy, to the big Cadillacs, Oldsmobiles and Lincolns so popular from the mid-1950s to the 1970s.

Big luxury cars are now a tiny part of the market. They have been replaced by the SUVs, vans and pickups. Such vehicles accounted for less than 20 percent of new vehicle sales in 1980; now they are almost half of the sales, according to the U.S. Department of Transportation.

Interest appears to remain high in low-mileage vehicles  

At the same time, fuel economy has become less of a priority. U.S. light vehicles -- classified as cars along with vans, SUVs and pickups -- got about 15 miles to a gallon of gas, on average, in 1975. That improved to almost 26 mpg by 1987. But U.S. fuel economy as measured by the EPA actually has been declining slowly and steadily since then.

People selling new vehicles say that with the strong economy the number of buyers interested in getting good mileage has declined.

"If they're going to spend $3 for a morning cup of coffee, they're going to spend $3 for a gallon of gas," said Mike Weinman of Weinman Ford in Chicago.

Ford's Explorer Sport Trac, and its mileage sticker  

He said he has a shortage of SUVs on his lot right now. He has trouble keeping in stock the new Explorer Sport Trac, a cross between an SUV and pickup that gets 15 miles per gallon in the city.

Anecdotal evidence such as this helps explain at least part of why U.S. demand for gasoline has been climbing steadily for a decade. According to the government's Energy Information Administration, demand hit a record 8.5 billion barrels of gasoline a day in April.

It is too early to know all the broader economic impacts of the most recent run-up in prices. The last gasoline price spike -- with the national average rising from about $1.35/gallon in January to $1.55/gallon in March, according to the U.S. Department of Energy -- did nothing to diminish demand.

At least in Chicago, where average prices for regular self-serve topped $2.20/gallon, higher prices may be starting to have an impact on demand. The Illinois Petroleum Marketers Association told CNN this week that anecdotal reports from service station owners found sales off as much as 20 percent at some places.

No one wants to wear a sweater, either

Forget the congressional hearings, the Federal Trade Commission investigation, a rollback of gas taxes, easing of clean air standards, and opening the strategic petroleum reserves.

Reducing demand is the only real way to have an impact on crude oil prices, and ultimately prices at the pumps, according to Flynn, the energy analyst. What is most likely to get OPEC's attention, he said, would be the threat of a U.S. recession, or at least a cooling of the economy, that could reduce demand.

It's money in the tank at gasoline stations these days  

A reduction in U.S. demand for gasoline, however, does not appear to be on anyone's horizon, at least going into a long Fourth of July weekend.

With pump prices considered high all around the country, the AAA Motor Club projects 37.5 million Americans will take to the roads this Independence Day weekend. That would be the most people behind the wheel for this holiday in 14 years, the group said.

Americans, it seems, are celebrating the independence to buy whatever kind of vehicle they want and to drive it whenever and wherever they want. And judging from history, they probably will do so as long as they can pay the price for that kind of freedom.


AAA Auto Club
The Lundberg Survey
Organization of Petroleum Exporting Countries - OPEC
U.S. Environmental Protection Agency
U.S. Department of Energy
U.S. Federal Trade Commission

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