Oil industry says soaring Nevada gas prices set by market flux

Thursday, March 4, 2004 | 11:38 a.m.

RENO, Nev. - Oil industry representatives sought to deflect criticism over Nevada's skyrocketing gasoline prices Thursday, saying high prices at the pumps are the result of several market forces - not manipulation.

High crude oil prices, strict schedules for refineries in California to change from winter to summer blends, routine maintenance, and cold weather all have contributed to higher costs, said John Felmy, chief economist with the American Petroleum Institute.

Motorists have seen gasoline increase 39 cents a gallon since mid-January in Nevada, which has the third highest pump prices in the nation.

"Overall, right now the situation in March 2004 is not unlike what we experienced a year ago," Felmy told reporters in a conference call arranged by the Western States Petroleum Association.

Additionally, he said refiners have had to substitute ethanol for methyl tertiary butyl ether, after MTBE was banned because of problems with contaminated drinking water.

The switch to ethanol, he said, is not only costly but produces less volume of finished gasoline.

In the volatile industry, even a small loss in volume tips the delicate balance of supply and demand, he said.

Felmy said the situation is made worse by the tight schedule refineries are under to change from winter blends of gasoline to summer blends to meet Clean Air Act requirements.

"Summer grade gas is much more challenging to produce, especially for ethanol," he said.

The Western States Petroleum Association is a trade group representing energy companies in six Western states - Nevada, California, Arizona, Oregon, Washington and Hawaii.

The association's public relations effort comes as gasoline prices have hit record levels, particularly in California and Nevada. Only motorists in Hawaii pay more.

The statewide average for a gallon of self-serve regular unleaded in Nevada was $2.06 on Thursday, 37 cents higher than the national average reported this month, AAA Nevada said.

Thursday's price topped the previous record high in Nevada of $2.03 per gallon on March 18, 2003.

Motorists in the state paid an average of $1.74 a month ago, and $1.67 in January, according to the automobile club.

The spike prompted U.S. Sen. Harry Reid, D-Nev., last week to ask the Federal Trade Commission to investigate.

"These sharp increases in gasoline prices are suspicious," said Reid, who questioned whether oil companies were manipulating prices to maximize profits.

"We as an industry are a prime target for politicians," Felmy said. "We've had dozens of investigations. We've been exonerated every time.

"It's just an unfortunate situation."