Motor Fuels: Gasoline Price Spikes in Oregon in 1999 (23-FEB-00, 
RCED-00-100R).							 
								 
Pursuant to a congressional request, GAO provided information on 
the extent to which retail gasoline prices in Oregon spiked from 
January through August 1999 and the factors that accounted for	 
the spikes.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   RCED-00-100R					        
    ACCNO:   163315						        
  TITLE:     Motor Fuels: Gasoline Price Spikes in Oregon in 1999     
     DATE:   02/23/2000 
  SUBJECT:   Comparative analysis				 
	     Economic analysis					 
	     Energy demand					 
	     Fuel supplies					 
	     Gas pipeline operations				 
	     Gasoline						 
	     Petroleum industry 				 
	     Petroleum prices					 
	     Petroleum refining facilities			 
	     Prices and pricing 				 
	     California 					 
	     Oregon						 
	     Washington 					 

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RCED-00-100R

Accountability l lntq~ rity * Reliability United States General Accounting
Office Resources, Community, and Washington, DC 20548 Economic Development
Division

B- 284379 February 23,200O The Honorable Gordon H. Smith United States
Senate

Subject: Motor Fuels: Gasoline Price Spikes in Oregon in 1999 Dear Senator
Smith: As requested, we are providing you with information on the extent to
which retail gasoline prices in Oregon spiked from January through August
1999 and the factors that accounted for spikes. We used the attached
material to brief you and your staff on February 4,2000, (see enc. I) and
have summarized our findings below.

From a historical perspective, gasoline demand in Oregon was about 100,000
barrels per day in 1998, according to federal and oil industry officials.
Because there are no refineries in Oregon that produce gasoline, all the
gasoline consumed in the state is supplied from outside the state. One
industry source estimated that about 68 percent of Oregon?s gasoline supply
in 1998 came from Washington; 26 percent from California; and the rest from
various other sources, such as Alaska. Gasoline prices in Oregon are among
the highest in the United States. Moreover, demand for gasoline in Oregon
grew rapidly from 1997 to 1998: According to the Federal Highway
Administration?s data, the demand for gasoline in Oregon grew by about 8.1
percent during this period, the highest growth rate in the country.

In summary, retail gasoline prices in Oregon spiked in the spring and again
in the summer of 1999, as shown in the figure below. During the spring
spike, average retail prices rose from a 4%- year low of $1.01 per gallon in
February to a high of $1.47 per gallon in April- an increase of 46 cents.
For the summer spike, after falling by about 14 cents per gallon, average
prices rose from $1.33 per gallon in June to $1.52 per gallon in August- an
increase of 19 cents. Over the whole period, from February to August,
Oregon?s average retail gasoline prices increased by about 51 cents per
gallon, compared to an average increase of about 33 cents per gallon for the
rest of the United States.

GAO/ RCED- OO- 100R Gasoline Price Spikes in Oregon

B- 284379 The price spikes in Oregon were due primarily to supply- related
problems in California and Washington. According to oil industry officials
and experts we contacted, the spring spikes were caused primarily by
disruptions in refinery operations in California, which reduced gasoline
production. According to estimates by the Department of Energy?s Energy
Information Administration, about 12 to 15 percent of California?s gasoline
production may have been affected by these disruptions during this period.
The summer spike was due mostly to a combination of additional refinery
disruptions in California and an explosion, in June, on the Olympic
Pipeline, which carries the bulk of the gasoline supplies that go from
Washington to Oregon. As a result of the explosion, gasoline supplies from
Washington to Oregon through the pipeline went from 2.65 million barrels per
month in May to 1.49 million barrels in June and 1.02 million barrels by
September. Alternative modes of transportation, such as barges, tankers, and
trucks, were used to ship gasoline to Oregon to compensate for this outage.
This added to the price increases because these types of transportation are
generally more expensive and slower than pipeline. Also, in both spikes,
price increases may have been exacerbated because uncertainty about supply
may have caused gasoline dealers to scramble to buy more gasoline than is
usual for fear of running out of supplies in the future. This increased
demand would contribute to rising wholesale and, ultimately, retail prices.
In addition, crude oil prices were generally rising during the period of the
price spikes, leading to higher gasoline prices in Oregon and in the rest of
the country. Finally, as part of the West Coast gasoline market, Oregon?s
price trends tend to more closely resemble trends in California than in the
United States in general.

Figure 1: Weekly Retail Gasoline and Crude Oil Prices, Dec. lS4- Aug. 1999
180 160

8. 80 ,-- -California regular

reformulated gasoline retail I-.- Oregon regular conventional

gasoline retail -US regular gasoline retail

-West Texas Intermediate crude oil

Source: Energy Information Administration and Platt?s Oil Price Database 2
GAO/ RCED- OO- 1OOR Gasoline Price Spikes in Oregon

Enclosure I To prepare the information in this report, we reviewed and
analyzed data on Oregon?s gasoline demand/ supply in 1997 and 1998, as well
as data on average retail gasoline prices for January through August 1999
available from various sources, including the Energy Information
Administration, Federal Highway Administration, and oil industry officials.
We also used crude oil price data from Platt?s Oil Price Database, a private
industry data source. In addition, we interviewed officials and experts in
the oil industry, federal and state officials, and experts in academia.

In general, we found little information on Oregon?s gasoline market, even
from the state?s energy office or other relevant agencies. The data we used
were the best available but may contain some limitations. For example,
Energy Information Administration officials noted that the data they
provided us on Oregon?s weekly average retail gasoline prices were
calculated from a relatively small sample and may not be fully
representative of the entire state?s weekly average. Furthermore, we focused
our analysis on supply and demand factors that we believe accounted for
price spikes. We did not address issues of Oregon?s market structure or
competition. The Federal Trade Commission is studying allegations of
anticompetitive behavior by oil companies in Oregon and other West Coast
states. We conducted our work from October 1999 through January 2000 in
accordance with generally accepted government auditing standards.

We provided a draft of this report to the Energy Information
Administration?s Petroleum Division for review and comment. We discussed the
report with officials from that Division, who advised us that they agreed
with the contents of the report.

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 14 days from the date of this letter. At
that time, we will send copies to interested Members of Congress and make
copies available to others upon request.

If you have any questions about this report or need additional information,
please call me at (202) 512- 3841. Major contributors to this report
included Daniel Haas, Godwin Agbara, Byron Galloway, and Frank Rusco.

Sincerely yours, TkJ. a-

Associate Director, Energy, Resources, and Science Issues

Enclosure GAO/ RCED- OO- 100RGasolinePriceSpikesinOregon

Enclosure I GAo U. S. General Accounting Office

Resources, Community, and Economic Development Division Retail Gasoline
Price Spikes in Oregon in 1999

Prepared for: Gordon H. Smith, United States Senator February 4,200O

4 GAO/ RCED- OO- 100R Gasoline Price Spikes in Oregon

Enclosure I c

GAo Table of Contents Background Objective Results in Brief

L \ 5

Scope and Methodology Retail Gasoline Price Spikes in Oregon in 1999

GAOIRCED- OO- 100R Gasoline Price Spikes in Oregon

Enclosure I GAo Background

Oreaon?s Gasoline Demand/ Supply Network? (about 100,000 barrels/ day)

6 GAURCED- OO- 100R Gasoline Price Spikes in Oregon i

Enclosure I GAo 0 bjective

To what extent did Oregon?s retail gasoline prices spike in the first half
of 1999 and what factors accounted for spikes?

GAO/ RCED- OO- 100RGasolinePrice SpikesinOregon

Enclosure I GAo Results in Brief

l Retail gasoline prices in Oregon spiked in the spring and summer of 1999--
about 46 cents/ gallon and 19 cents/ gallon, respectively.

l Spikes were due primarily to supply- related problems in California and
Washington.

8 GAWRCED- OO- 100R Gasoline Price Spikes in Oregon

Enclosure I I i I

i I

I GAo Scope and Methodology

l We reviewed and analyzed Oregon?s gasoline demand/ supply data for 1997-
98 and its average weekly retail gasoline price data for Jan. 1999 - Aug.
1999.

l We interviewed officials and experts in the oil industry, federal and
state officials, and academia.

l Little information was available on Oregon?s gasoline market.

l We used the best available data from federal and oil industry sources. l
The data we used may contain some limitations (e. g.,

Oregon?s weekly retail price data from the Energy Information Administration
were calculated from a relatively small sample and may not be fully
representative of the entire state average.

9 GAOIRCED- OO- 100R Gasoline Price Spikes in Oregon

Enclosure I GAo Retail Gasoline Price Spikes in Oregon in

1999 l Spring spike

- Average prices rose from a 4- l/ 2- year low of $1 .Ol/ gallon in February
to a high of $1.47/ gallon in April-- 46- cent increase.

l Summer spike - After falling about 14 cents/ gallon, average prices rose
from $1.33/ gallon in

June to $1.52 /gallon in August-- l Q- cent increase. l Over the whole
period, February to August, Oregon?s average

retail gasoline prices rose by 51 cents/ gallon, compared to an increase of
about 33 cents/ gallon for the U. S. average.

10 GAO/ RCED- OO- 100R Gasoline Price Spikes in Oregon

Enclosure I GAo Oil Industry Officials/ Experts Views on Why

Prices Spiked Spring l Disruptions in refinery operations in California
reduced gasoline

production. - About 12- 15% of California?s production was affected (Energy

Information Administration?s estimate). l Market psychology-- dealers
demanding more supplies for fear of

running out-- may have played a role. Summer l Explosion disrupted flow of
gasoline on the Olympic Pipeline from

Washington to Oregon. - The flow declined from about 2.65 million barrels/
month in May to 1.49

million barrels/ month in June, to 1.02 million barrels/ month in September.
- Marine and other transportation modes were used, but they are slower and

costlier, adding to price spikes. l Additional refinery disruptions occurred
in California. l Again, market psychology may have played a role.

FTC is studying allegations of anticompetitive behavior by oil companies.

(141415) 11 GAO/ RCED- OO- 100R Gasoline Price Spikes in Oregon
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