Gasoline Could Hit $5 a Gallon as Big Oil Scales Back Expansions

According to the Associated Press, just as gasoline prices are starting to drop back down below the $3.00 per gallon mark, big oil companies have announced that they have plans to scale back the production of oil refinery expansions. Such a move could raise gas prices for many years to come.

Analysts say that the move to cut back on refinery expansions could drive gasoline prices as high as $5.00 per gallon over the next few years.

So with consumer anger at an all time high, why would oil companies be willing to make such a move? Well, you can thank the United States government for that one.

For the past few years the Senate has been pushing for increases in ethanol production. With President Bush calling for a 20 percent decrease in the use of gasoline, ethanol has become the main substitute.

The oil companies have seen the push by President Bush and the Senate to increase ethanol production and believe there will be less of a demand for oil in ten years. Since they believe there will be less of a demand for oil, they claim spending billions of dollars on refinery expansions is bad for business. Why build something that won't be needed in ten years?

So if ethanol is ten years away and oil companies refuse to build expansions, doesn't that mean the demand for gasoline will continue to rise and big oil won't be capable of producing enough of it? Yes.

In fact, a shortage of refineries has been blamed on high gasoline prices for years.

"The fact is that Americans are paying more at the pump because we do not have the domestic capacity to refine the fuels consumers demand," said Senator James Inhofe, of Oklahoma.

However, consumer advocates say that oil companies like it that way.

"By creating a situation of extremely tight supply, the oil companies gain control over price at the wholesale level. They have no interest in creating spare (refining) capacity," said Mark Cooper of the Consumer Federation of America.

With more than 75 percent of Americans stating that the current price of gasoline has put a strain on their pocketbooks, a lack of refinery expansions is only going to make matters worse.

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