Summary of the Report of
The House Interim Committee of Motor Fuel Prices
Representative Bill Ransdall, Chair
October, 2000

In January, 2000, motor fuel prices in Missouri began a rapid, unprecedented rise, peaking in June, 2000, at a statewide average of $1.70 per gallon. During this period, fuel prices also fluctuated widely, both on a day-to-day basis and from place to place within small geographical areas. The committee found that interaction of the following factors was responsible for the rapid increase and volatility in motor fuel prices:

• High Crude Oil Prices: Largely in response to manipulation by OPEC, the world-wide price of crude oil rose sharply in late 1999 and early 2000, and remained high thereafter.
• Profit Taking by the Petroleum Industry: Although profit margins for petroleum retailers did not increase appreciably during the period of escalating prices, other sectors of the industry, particularly crude oil producers and refiners, appeared to have opportunistically taken advantage of market factors to sharply increase profits.
• Inventory Practices of the Petroleum Industry: The voluntary move to just-in-time inventory practices by the petroleum industry created a system vulnerable to supply disruptions and price volatility. The industry also intentionally allowed gasoline stocks to dwindle in anticipation of the changeover to Phase II reformulated gasoline.
• Inelastic Demand and Dependence on Foreign Oil: Consumer demand for motor fuel continues to increase and has not responded appreciably to price fluctuations.

The committee found no evidence that price increases were the result of illegal activity or a genuine fuel scarcity. There was also no evidence that the reformulated gasoline requirement for the St. Louis area contributed significantly to supply problems or price increases.

The committee recognizes that some factors responsible for the increases in motor fuel prices are beyond the control of the state. The committee does, however, recommend:

• Monitoring and Reporting Trends: The state should continue to monitor trends in fuel prices, supplies, and demand, and make this information widely available to the public. The state should also monitor information necessary to ensure fair marketing practices.
• Improving Energy Efficiency: To reduce dependence on petroleum, the state should work with the federal government to increase the energy efficiency of motor vehicles.
• Encouraging Development of Alternative Fuels: To further reduce dependence on petroleum, the state should encourage development of ethanol, biodiesel, and other alternative fuels.
• Reducing the Number of Fuel Types: To simplify refinery production and inventory practices, the state should work with the federal government to reduce the number of mandated fuel products required in Missouri.
• Re-establishing Less Vulnerable Inventory Practices: The petroleum industry should voluntarily re-establish inventory practices that are less vulnerable to supply disruptions.

Terry Finger, Senior Legislative Analyst