To the editor:
In response to your Aug. 7 editorial, "Why higher gas prices so soon?" we would like to state that we in the oil industry realize many motorists are angry about rising gasoline prices and that they are wondering whether the large oil companies have acted responsibly.The answer to that is yes, even though that may not be widely understood by the public. No one can speak for every refiner, every wholesaler or every retailer. In the entire nationwide system there may be some evidence of overreaction to a volatile market. But the industry itself has acted and will continue to act with restraint and fairness.
As a result of Iraq's invasion of Kuwait and the resulting multination boycott, which is threatening the loss of as much as 4 millions barrels a day of oil from the world energy marketplace - the spot market reacted quickly.
The "spot market" price is the price for crude oil or gasoline for prompt delivery at a specified location and not sold under long-term contract. The spot market is where companies may have to turn to obtain extra supplies quickly, and prices on the spot market soon affect the prices paid for all supplies.
In the first three weeks after the Iraqi invasion, spot prices for crude oil rose about 20 cents a gallon and spot gasoline prices about 35 cents a gallon. These are the prices oil companies had to pay to replenish their supplies. At the same time, retail prices for gasoline that consumers pay rose, on average, only about 15 to 16 cents a gallon.
Thus, while the world and domestic markets reacted, the pump price in fact did not increase as much as the rise in replacement costs.
Our industry has not taken advantage of today's international crisis in a self-serving way. We have publicly pledged our support and cooperation to the president and fully recognize our special role and responsibility, both in supplying the military and in providing petroleum for our millions of customers in the United States.
American Petroleum Institute