AAA: $3 gas 'a thing of the past'

Motorists shouldn't expect gasoline prices to ever fall below $3 again, an official with AAA said on Tuesday.

“The days of a national pump price below $3 is probably a thing of the past,” Chris Plaushin, director of federal relations with AAA, told the Senate Energy and Natural Resources Committee at a hearing on fuel prices.

Plaushin noted that the national average price of gasoline on Jan. 1 was $3.29 per gallon, the highest-ever starting point for a year.

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That record high came despite a domestic production boost that “continues to surpass even the most optimistic forecasts of recent years,” said Adam Sieminski, who runs the federal Energy Information Administration.

Senators disagreed at the hearing about why gas prices remain high despite the increase in domestic production.

Committee Chairman Ron Wyden (D-Ore.) and Sen. Tammy Baldwin (D-Wis.) said refineries play a role in volatile gas prices.

They said the U.S. gasoline market is becoming more dependent on a smaller number of complex refineries. When outages occur — for maintenance, from storms and other issues — prices shoot upwards, they said.

Wyden also suggested that some refineries might also be collecting a windfall on crude oil.

“Supply is up, demand is down, but prices at the pump are still stubbornly high,” Wyden said.

Several witnesses said oil prices are determined on the global market.

“Refiners such as Valero are in the position of being price takers, not price makers,” said Bill Klesse, chief executive with Valero Energy Corp.

When production rises in one region, producers elsewhere can slash output to maintain price levels — a tactic the Organization of Petroleum Exporting Countries has long employed.

That cartel of oil-rich states consists of economies that largely depend on oil revenues, giving them an incentive to maintain prices.

Still, U.S. production is making a dent in oil prices, according to Sieminski.

He said said OPEC countries are holding onto more capacity than they originally anticipated because of U.S. supplies, which in turn has helped lower international oil prices.

“I think that consumers are benefiting from the growth in domestic oil production,” he said, while noting that the effect of new U.S. supplies on prices is still relatively limited.

Sieminski said high gas prices are more a result of the domestic energy boom catching the U.S. oil industry off guard. He said the influx of crude oil has “stressed” nation’s petroleum infrastructure, blunting the full impact of new oil supplies.

Historically, 90 percent of crude oil and petroleum products traveled through pipelines. But the rapid injection of more oil has forced firms to increasingly rely on rail for transport, Sieminski said. 

He also noted that U.S. refineries must upgrade their facilities from those that handle heavy, sour crude to the uptick of domestically produced light, sweet crude. 

Witnesses said infrastructure alone was not at fault, and some fingered the renewable fuel standard as the cause of higher prices.

Klesse said refiners are forced to buy credits for advanced biofuels that haven’t yet reached commercial production to meet the mandate’s blending requirements. He said the price of those credits is rising, resulting in higher pump rices.

“Today the most important thing affecting us is the renewable fuel standard,” Klesse said. “The renewable fuel standard is out of control.”

The oil industry is lobbying Congress to make changes or repeal the federal rule, which requires refiners to blend 36 billion gallons of biofuel into conventional petroleum by 2022.

Some lawmakers were sympathetic to Klesse’s concern. Ranking member Lisa Murkowski (R-Alaska) said Congress “needs to reform” the biofuel rule, and Wyden said he wants to look at the rule because he isn't sure current blending targets can be met.

Midwest Democrats, however, defended the biofuel rule.

“I don’t think it’s fair to blame the renewable fuel standard,” Sen. Al Franken (D-Minn.) said, saying advanced biofuel facilities are starting to come online across rural America.

And Sen. Debbie Stabenow (D-Mich.) accused the oil industry of wanting to keep biofuel off the market.

“Why would you want competition? You want to control the market,” Stabenow said.