[A-List] US Petrol Price at Historic Low + Clinton-McCain Gas Tax Holiday Slammed as Bad Idea

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

<http://www.ft.com/cms/s/0/d5566134-122f-11dd-9b49-0000779fd2ac,dwp_uuid=f2b40164-cfea-11dc-9309-0000779fd2ac.html>
US petrol price at historic low

By Sheila McNulty in Houston

Published: April 24 2008 21:11 | Last updated: April 24 2008 21:11

Despite having reached an all-time high, US petrol prices are at a
historical low in relation to crude oil prices, according to a study
by a prominent think-tank at Rice University in Texas. Given stagnant
or even falling demand at the pump, refiners are finding it difficult
to pass oil price increases on to consumers.

Jim Mulva, chief executive of ConocoPhillips, the third biggest US oil
and gas company and second biggest US refiner, said in an interview
with the Financial Times refiners were only "breaking even" despite
the outcry over rising petrol prices.

The university study reveals that if the price of petrol followed that
of crude oil, petrol should have risen to $3.68 a gallon once oil hit
$100 a barrel, based on the historical price relationship.

Given that crude oil costs usually make up about 60 per cent of fuel
prices, there has always been a close correlation between petrol and
oil prices. Yet despite oil having risen as high as $119 in recent
days, average US petrol prices have remained below $3.68.

As a result, margins of refiners have decreased and the cost of crude
oil now accounts for 65 to 70 per cent of the price at the pump.

The US's biggest refiner, Valero, has pre-announced first-quarter
earnings of between 10 and 35 cents per share, a sharp drop from
Credit Suisse Global Energy's $1.14 estimate.

Integrated oil companies, conducting exploration and production as
well as refining and marketing, are better shielded from the inability
to raise petrol prices further. ConocoPhillips reported a
first-quarter net income of $4.1bn (â2.6bn, Â2.1bn) yesterday, but
only $520m in net income for its refining and marketing segment, down
from $1.1bn in the first quarter of 2007.

In addition to sagging petrol demand, Credit Suisse's US equity
research team says refinery margins are also under pressure because of
the introduction of ethanol into the US market.

If petrol prices continue to rise , analysts expect demand to fall
further, leaving refiners with oversupply. According to Mr Mulva, some
refiners have already stopped "some runs" because they judge the
market to have excess supply.

Amy Myers Jaffe, energy expert at the Baker Institute, says that in
the past couple of years rising prices have begun to have an impact on
US demand, resulting in the average annual consumption increase
falling sharply from the previous decade. From 2003 to 2004, US petrol
consumption rose 1.9 per cent, but increased only 0.6 per cent from
2004 to 2005 and 1 per cent from 2005 to 2006. Preliminary data for
2007 indicate demand rose 0.5 per cent from 2006 to 2007.

This month, oil companies were called to hearings in Congress to
explain the record price rises.  â Nancy Pelosi, the speaker of the US
House of Representatives, yesterday called on the White House to
temporarily stop sending crude oil to the nation's emergency
stockpile, Reuters reports from Washington.

The White House has resisted calls to stop deliveries to the reserve,
saying they have a minimal effect on prices and are a necessary buffer
against supply disruptions. Ms Pelosi said suspending deliveries would
cut pump prices by five to 24 cents per gallon.

<http://uk.reuters.com/article/wtMostRead/idUKN3038243520080430>
Clinton-McCain gas tax holiday slammed as bad idea
Wed Apr 30, 2008 8:25pm BST

By Alister Bull

WASHINGTON (Reuters) - A gas tax holiday proposed by U.S. presidential
hopefuls John McCain and Hillary Clinton is viewed as a bad idea by
many economists and has drawn unexpected support for Clinton rival
Barack Obama, who also is opposed.

"Score one for Obama," wrote Greg Mankiw, a former chairman of
President George W. Bush's Council of Economic Advisers. "In light of
the side effects associated with driving ... gasoline taxes should be
higher than they are, not lower."

Republican McCain and Democrat Clinton, who is battling Obama for
their party's nomination, both want to suspend the
18.4-cents-per-gallon federal gas tax during the peak summer driving
months to ease the pain of soaring gas prices. The tax is used to fund
the Highway Trust Fund that builds and maintains roads and bridges.

Economists said that since refineries cannot increase their supply of
gasoline in the space of a few summer months, lower prices will just
boost demand and the benefits will flow to oil companies, not
consumers.

"You are just going to push up the price of gas by almost the size of
the tax cut," said Eric Toder, a senior fellow at the Urban-Brookings
Tax Policy Center in Washington.

Obama criticized the plan as pure politics and said the only way to
lower the price of gas is to use less oil.

"It would last for three months and it would save you on average half
a tank of gas, $25 to $30. That's what Senator Clinton and Senator
McCain are proposing to deal with the gas crisis," he said on Tuesday
in Winston-Salem, North Carolina.

"This isn't an idea designed to get you through the summer, it's an
idea designed to get them through an election."

This stance has prompted Clinton to accuse him of being out of touch
with ordinary Americans as she campaigns ahead of key presidential
nomination contests in North Carolina and Indiana on May 6.

CLINTON AT THE PUMP

The New York senator was commuting to work in South Bend, Indiana, on
Wednesday and planned to pump gas at a gas station to draw attention
to her plan to suspend the gas tax on consumers and businesses.

"We will pay for it by imposing a windfall profits tax on the big oil
companies," she said on Tuesday. "They sure can afford it. This is a
big difference in this race. My opponent opposes giving consumers a
break from the gas tax but I believe the American people are being
squeezed pretty hard."

The cost of a gallon of gasoline has touched $4 in some parts of the
country as oil prices nudge toward a record $120 per barrel, hammering
drivers at a time when higher food prices and falling home values are
already crimping U.S. consumers.

Many economists implicitly agreed with Obama and said the
McCain-Clinton gas tax plan sent the wrong signal on energy efficiency
and was at odds with their pledges to combat climate change by
encouraging lower U.S. carbon emissions.

"I think it is a very bad idea," said Gilbert Metclaf, a economics
professor at Tufts University currently working with the National
Bureau of Economic Research.

"If we want people to invest in energy-saving cars, we need some
assurance that the higher price paid for these cars is going to pay
off through fuel savings," he said. "It is a very short-sighted,
counterproductive proposal."

Economists also saw it is a poor way of getting money to the
households that need it most and warned that it might end up in the
cash tills of the oil companies.

"If you want to provide households tax relief, a direct rebate ... is
more effective. Not all of the tax relief from a gas tax holiday will
be passed on to consumers. Some will likely be kept by refiners,"
Mankiw said in an e-mail response.

New York Times columnist Paul Krugman was similarly underwhelmed:
"It's Econ 101: the tax cut really goes to the oil companies," he
wrote on his blog on Tuesday.

(Additional reporting by Jeff Mason in Winston-Salem, N.C., and Ellen
Wulfhorst in Indianapolis)

(Editing by Bill Trott)
-- 
Yoshie
<http://montages.blogspot.com/>