Gasoline prices in the U.S. Midwest have pulled back from the seasonal highs reported in February. Motor group AAA reported Monday that U.S. commuters paid, on average, $3.69 for a gallon of regular unleaded gasoline, just over 1 percent less than they paid last week. For some markets, that's the first time gasoline prices have declined this year. A series of refinery issues, coupled with higher oil prices, left some motorists in February paying the highest they've ever paid seasonally for a gallon of regular unleaded gasoline. By the end of February, some drivers in the Midwest were paying nearly $4 per gallon on average, sparking congressional debate over the impact of speculation in the energy market. Given concerns over costs associated with healthcare, insurance and other issues not related directly to energy, it's curious why there aren't hearings when prices begin to fall.
Rep. Ed Markey, D-Mass., ranking member of the House Natural Resources Committee, last month threatened to introduce legislation that would put an end to subsidies for energy companies that raked in profits while taxpayers were paying record-setting gasoline prices. On the other side of the aisle, Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said U.S. commuters would find relief once President Barack Obama signs off on the Keystone XL pipeline.
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A week ago, when Massachusetts drivers paid $3.75 per gallon, Markey was expressing his frustrations over fish fraud. For Upton, however, the story was the same. Last week, he expressed concern about the Keystone XL pipeline delays and proposals from Washington that would require stricter smog abatement at oil refineries. Those restrictions would add at least another six cents to gasoline prices when U.S. commuters are already paying record levels, Upton argued.
Monday, however, saw consumers in Midwest markets paying less for gasoline. While that still leaves some Chicago-area commuters paying more than $4 per gallon, it's the first time prices have dropped this year. By Monday, Michigan fell from its February position of No. 7 in terms of high gasoline prices to the No. 21 spot, paying around the national average for a gallon of regular unleaded. Prices may drop further after U.S. crude oil inventories reached eight-month highs.
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Gasoline prices change consumer behaviors. When prices are low, people drive more. That gets them to work quicker, but once U.S. gasoline prices start moving closer to the $4 threshold on average, commuters start using more public transportation, walking to work or telecommuting. During summer price spikes in 2008 and 2009, reports found that obesity rates declined by 10 percent for every $1 increase in gasoline prices, which in turn can save on overall healthcare costs. Higher gasoline prices also mean less traffic, which translates to safer roads, fewer traffic deaths and lower insurance costs. Consumers also turn toward vehicles that get a better fuel economy, instead of gas-guzzling SUVS. And less gasoline use means less pollution and a potentially lower rate of climate change.
The U.S. Energy Department expects retail gasoline prices to average around $3.57 per gallon this year, about 3 percent less than the current average. That average price drops further to $3.39 next year. As the summer driving season approaches, however, it's the Markeys and the Uptons who will be out first with their answers to the unavoidable return to $4 gas. When lawmakers clamor over solutions to the inevitable seasonal -- and temporary -- gasoline price crisis, see how many of them also discuss the health benefits of walking to work for free.
By. Daniel J. Graeber of Oilprice.com