Fact Check Examines Playing Politics With Gasoline Prices

FactCheck.org investigates and clarifies an issue facing the Memorial Day drivers along their holiday routes:

May 27, 2011

Summary

Democrats and Republicans disagree on energy policy, but this they share: Both shade the facts on the complex issue for political advantage.

Republicans say repealing oil industry tax breaks will drive up costs at the pump. However, nonpartisan congressional analysts and industry experts say higher taxes would have little or no effect on gasoline prices.
Senate Democratic leaders asked the Federal Trade Commission to investigate oil refiners for limiting supply "to keep prices artificially high." But the FTC says the "vast majority" of past investigations found "market factors," not collusion, to be the cause of price spikes.
President Barack Obama in a weekly address said policies already adopted by the administration "could save families as much as $3,000 at the pump." Maybe so. But that's an administration estimate of cumulative net savings over six years for somebody buying a new car in 2016.
Sen. Rand Paul claimed that oil companies earn only 7 cents on a gallon of gasoline. Not true. That figure does not include profit from producing and selling crude oil, so it grossly underestimates the amount companies earn on high gasoline prices. One oil analyst calls the figure "disingenuous."

Analysis

Gasoline prices have been hovering near or above $4 a gallon for months, and the summer driving season is only just about to start. The reasons for high prices at the pump are many, beginning with the high cost of crude oil — which accounts for about two-thirds of the cost of gasoline. Energy Information Administration data shows spot prices of crude oil have been near or above $100 a barrel since late February.

Oil industry analysts say several factors contribute to high cost of crude oil: increased demand for oil as the world economy begins to recover, turmoil in oil producing countries in the Mideast and North Africa, a weaker U.S. dollar, and speculation in the oil futures market.

The focus in Washington has largely been on the oil companies. Democrats have called for the repeal of oil industry tax breaks, and they suggest that refiners are illegally manipulating gasoline prices and gouging the public. Republicans have called for increased domestic oil production and warned that any attempt to penalize oil companies will cause more pain at the pump for motorists. The partisan debate has produced some questionable claims.

Will Repealing Tax Breaks Raise Prices at the Pump?

The Senate on May 17 voted down a Democratic bill that would have repealed tax breaks for major oil and gas companies to the tune of $21 billion over 10 years. But with the price of gasoline remaining high, the issue isn't going to go away. The Democrats immediately vowed to bring the issue up again during negotiations on raising the debt ceiling, and they have been using the issue of tax breaks to help raise campaign cash.

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