5 things you should know about gas prices

If you believe the experts, the oil companies aren't lying to you; it really is supply and demand. And no, it isn't price gouging by any legal definition; it's just the normal profit taking.

1. Are gas prices truly high, and will they stay that way?
Gas prices have dipped slightly since hitting a record national average high of $3.227 on May 24. When adjusted for inflation, the 1981 price was a bit higher, at $3.29, according to the Energy Information Administration, an independent research arm of the U.S. Department of Energy. Factor in gains in average fuel efficiency -- 21 mpg today compared with 15 mpg to 16 mpg in 1981 -- and we're spending less on gasoline today: less than 3% of gross domestic product compared with 4.6% in 1981.
As U.S. refineries regain operating capacity in the days to come, the domestic supply should improve and cause prices to level off. Any disruption in operations -- from a hurricane or fire, for example -- could cause another bottleneck, however. And analysts don't expect any significant price drop until refinery capacity is added, in 2009 at the earliest.
"We would expect prices to be somewhere between $2.50 and $3.25 for the next several months," said Doug MacIntyre, a senior oil market analyst with the EIA. "Right now it's not in our forecast to see a return close to $2 a gallon anytime soon."

2. Is there something consumers can do now to immediately drive prices down?
On this one the experts generally agree: No.
One-day or one-month boycotts don't reduce the overall demand for gas and so don't affect price. (Economist Steven D. Levitt, author of "Freakonomics," called the recurring one-day boycott idea "a new low in economic thinking.")
As with weight loss, there is no quick fix, and the only answer is predictably not sexy: Consume less. Choose fuel efficiency, car pools, public transportation, your legs. With time, an across-the-board, consistent drop in demand should equilibrate prices. An increasing number of retailers are offering separate prices for cash and credit. With a 2.5% credit card fee, stations are now paying upward of 8 cents a gallon to the card companies. Customers can't get a cash discount just for asking; stations must have both prices displayed and have their pumps configured to tabulate each.
Lobbying for a release from the nation's billion-gallon Strategic Petroleum Reserve wouldn't do much good; the current crunch is largely a problem of refinery capacity rather than raw supply.
Drivers can also use a fuel-cost calculator and MSN Autos' cheap-gas finder to plan ahead or use MSN Autos' fuel-saving tips.
Consumers who suspect price abuse can file a Web report with the Department of Energy or call the hot line at 1-800-244-3301.

3. If there's a gas "shortage," why can I buy all I want?
In the 1970s, when the government tried to allocate gas to keep prices down, miscalculations did result in shortages in some areas. There isn't a shortage now, say economists, because the free market is allocating supplies based on people's willingness to pay.
"There's an imbalance, and the imbalance is being taken care of through high prices," said Lou Pugliaresi, president of the Energy Policy Research Foundation, an independent research board funded in part by the oil industry. "The market will equilibrate."
That means poor people cut back and rich people pay more. The upside is that if the market is working properly, high prices should entice operators to boost supplies, causing prices to drop back down.
"Given these high prices, every incentive is on," Pugliaresi said. "It may take a few months, but that supply is coming."
Video: The great gas-price nonconspiracy

4. Why don't oil companies just build more refineries?
It takes 10 to 15 years for a company to site, permit and build a new refinery. With relatively flat profit margins prior to 2002 and calls to reduce the use of fossil fuels, analysts say the payoff has been too uncertain to risk a long-term, multibillion-dollar investment.
As a result, no new refineries have been built since 1976. When operating capacity drops from 95% to 89%, as it did to accommodate maintenance shutdowns and other problems this spring, producers are forced to buy refined product at world auction.
"You've got conflicting signals from policy makers," said Bill Holbrook, spokesman for the National Petrochemical & Refiners Association. "On the one hand, they call on industry to expand capacity. On the other hand, the same policy makers are advocating the reduction in the use of gasoline. So if you're a manufacturer, you're going to stop and think about how much to invest in a new factory to build a product that some are calling to limit in distribution."
Holbrook said the industry has built the equivalent of one large-scale refinery in each of the past 14 years in the form of expansions, and that "basically every major company is contemplating an expansion at a facility somewhere."

5. Do oil companies make greater profits during high-priced "shortages"? If so, what would motivate them to satisfy demand?
"Does it translate to profit? At this moment, yes," said Doug Reynolds, associate professor of oil and energy economics at the University of Alaska Fairbanks. "But, as with any company, it never lasts long. It always entices new competitors."
If the market is working properly, high profits do motivate new suppliers to enter the game, "as opposed to giving the profits to the people waiting in a gas line, who won't build new refineries," Reynolds said.
The question, he said, is why suppliers have not yet been motivated to build new refineries, in which case we need to look at the broader market conditions.