Who's to blame for gas prices? Not just oil companies

U.S. oil companies blame the global oil market for high gasoline prices, but a close analysis of pricing suggests that it's not so simple: The run-up at the pump also comes from domestic refining, which is largely controlled by Big Oil.

In consultation with several economists, The Associated Press examined pricing trends since 1999, which was the starting bell for the modern era of pricier gasoline. It found evidence that:

* The portion of gas prices tied to refining has ballooned all on its own, apart from oil.

* The suspicion of frustrated drivers is correct. After moving up, the price of gasoline drops more slowly than the price of oil -- and someone pockets the difference.

The U.S. average price for self-serve regular gas climbed to a record high at just over $3 a gallon in July, according to research firm Lundberg Survey. The petroleum industry knows that many drivers are angry about record prices and profits in the industry.

In a recent TV commercial by the industry's American Petroleum Institute, a driver wonders "why world demand for crude oil determines what I pay at the pump." The industry wants Americans to know that the price of gas tracks the price of its chief ingredient, crude oil. Why? Oil prices are set on a world market, often beyond the direct control of U.S. petroleum companies.

The group has a point. Crude oil does account for just under half the price of gasoline, the government says. And oil prices are subject partly to supply decisions of foreign oil powers and stiff demand in Europe and Asia.

However, many Americans remain dubious, even contemptuous, of the industry's claims.

"It's a bunch of bull. It's just to cover their behinds," said Fernando Reas of Hartford, Conn., who was saving on gas this summer by vacationing closer to home.

Consumers are right to suspect that there's more to the story.

Almost a fifth of gas prices pays refiners who make gasoline from oil. U.S. refineries have been lifting their prices, too.

Charges of refineries can be detected in their margin -- the difference between what they pay for crude oil and what they collect for the gas they refine. Service station costs and taxes add to the final retail price of gas.

In a competitive market, when raw material gets more expensive, margins typically shrink. Not so in the oil business these days. Refiners have somehow managed to fatten their margins through years of rising oil costs.

Since 1999, their average margin has jumped 85 percent, according to AP's analysis of daily data from the New York Mercantile Exchange. In the seven preceding years, that margin increased just 20 percent.

Rayola Dougher, who oversees market issues for the American Petroleum Institute, says the current margins are helping refiners bounce back from leaner times of the 1990s. "They're still as a sector struggling, but certainly the last few years have been looking good," she acknowledged.

Refining groups say they are doing their best to bolster supplies, which would ease price pressure. The industry plans to expand domestic refining capacity by at least 8 percent over the next few years.

However, the margin rise has not been all gravy for refiners.

Refining costs have escalated from environmental mandates, such as special gas blends mandated in particular places. Wild price fluctuations have added risk and financing cost to business projects. Last summer's hurricanes also temporarily took out some operations.

But refining margins also reflect profit. Some economists and consumer advocates suspect that refiners have intentionally bottled up supply to buoy prices, margins, and ultimately, profits.