Fuel For Debate

Here are some questions and answers on what’s behind the jump in gasoline prices, what, if anything, the government can do and what the prospects are for prices to go up or down.

Q: How much have prices increased and will they go higher?

A: Since early February, average prices of all grades of gasoline soared from $1.12 a gallon to nearly $1.32, according to the Energy Information Administration. Unleaded regular jumped from $1.08 to $1.27, but premium grades in California exceeded $2 a gallon in some places. Already there are signs that the higher prices will not be sustained. Oil prices that peaked at $25 a barrel in mid-April have fallen more than $4, for June delivery. And spot prices for gasoline have dropped 9 cents since Monday.

Q: What’s behind the spring price surges?

A: Many factors were at play but at the core of the price spike was a jump in crude oil prices from $17.53 a barrel in late December to $25 a barrel by mid-April.

Q: Why did the oil price increase?

A: Industry analysts say it’s basic supply and demand. Worldwide crude inventories were unusually low through much of the winter because some anticipated production did not materialize. The worldwide inventory was being reduced at the rate of 1.4 million barrels a day, three times normal. By year’s end, there were 893 million barrels in inventory, 100 million barrels below normal and only an 86-day supply.

Q: What caused the inventory decline?

A: Oil companies - as other industries - in recent years have adopted a “just-in-time” inventory management approach to save millions of dollars in storage costs. They expected cheaper oil toward the end of the year because of possible reentry of Iraq as an oil supplier and new production in the North Sea. But Iraqi oil never materialized because of a continuing dispute with the United Nations and North Sea production was delayed.

Q: What role did demand play in all this?

A: The severe and unusually long winter brought unexpected demand on heating oil last winter. Changes in driving habits - higher speed limits and the popularity of gas-guzzling sports vehicles and pickup trucks - increased demand for gasoline.

Q: Should the oil companies be blamed?

A: Industry executives argue the decision to hold tighter oil inventories is prudent and in the long-run saves millions of dollars that are reflected in lower gasoline prices. Critics say that oil companies may have saved money in reduced storage costs, but the motorists later paid the price.

Q: Who made money? ,

A: The biggest winners were large oil companies that saved money because of reduced storage costs in 1995 and profited when crude prices jumped. Major oil companies reported earnings increases of 19 percent to 42 percent in the first quarter of 1996.

Q: Was there collusion among the major oil companies?

A: The Justice Department is trying to find that out and likely will take a close look at oil companies’ policies on inventory management. Industry executives say each company has simply been reacting to market conditions.

Q: Republicans want to roll back the gasoline tax. What effect will it have on prices?

A: Analysts suggest there will be little noticeable effect. It’s not certain the tax rollback will be passed on to customers since gasoline prices likely would be dictated by supply and demand.

Q: Are we paying too much for gasoline?

A: Taking into account inflation, even after the price jump this spring, gasoline still is a bargain, according to industry analysts. “When you look at the real price of gasoline, it’s about what you paid in 1947,” says Kevin Lindemer of Cambridge Energy Research.

Q: Where does the money for a gallon of gas actually go? ,

A: At $1.32 cents a gallon, it breaks down this way: 56 cents, crude oil; 10 cents, refining; 28 cents transportation and retail sales; 18.3 cents, federal tax; 19.7 cents, state and local taxes, according to Cambridge Energy Research Associates.

Q: What effect will higher gas prices have on travel?

A: The American Automobile Association estimates a 15-cent increase in gasoline prices adds less than $5 to an 800-mile trip in most cars.