MR. KOJO NNAMDIGasoline prices are on the rise again and that means hand wringing and finger pointing are, too. In an election year, any up-tick in prices at the pump means a public rush to assign blame. But experts say the public doesn't really understand what drives gas prices up or down and that even higher prices don't keep very many people out of their cars. A strategist debate imports versus domestic oil production and the perennial question whether or not to release oil from the strategic petroleum reserve, we'll look at how gas station owners and environmentalists are reacting to the recent rise in oil prices.

MR. KOJO NNAMDIJoining us in studio is Paul Bledsoe. He's a strategic advisor to the Bipartisan Policy Center and a former Clinton Administration official. Paul Bledsoe, thank you for joining us.

MR. PAUL BLEDSOEMy pleasure.

NNAMDIAnd joining us by phone is Richard Agoris. He is president of the Washington, Maryland, Delaware Service Station and Automotive Repair Association which represents independent gas station owners. Richard Agoris, thank you for joining us.

MR. RICHARD AGORISThank you for having me.

NNAMDIPaul, I'll start with you. Give us a quick primer. Why are gasoline prices rising right now? How are prices at the pump tied to the price of crude oil on the world market?

BLEDSOEWell, it's really supply and demand. There is growing demand around the world for oil from places like China, India, Brazil, as well as developed countries. And there is a finite supply. It turns out historically in recent decades there was a spare capacity in the system, primarily in Saudi Arabia, of about 5 million barrels. So that when prices got very high you would have a president call the Saudi royal family and ask them to produce more oil. Now that spare capacity is down to about 2 percent of the entire global oil supply, so markets are very tight and prices are going up. Turns out the price is about three-quarters of the total price of gasoline you pay at the pump.

NNAMDIWe're talking with Paul Bledsoe. He's strategic advisor to the Bipartisan Policy Center about rising gas prices and taking your calls at 800-433-8850. How does the price of gasoline affect your driving? Do you drive less when prices are higher? What do you think American can or should to decrease the country's gasoline consumption? Increase fuel efficiency standards? Produce more oil? Have higher gas taxes? 800-433-8850. You can send email to kojo@wamu.org., send us a tweet @kojoshow, or got to our website kojoshow.org, join the conversation there.

NNAMDIPaul, Americans tend to blame politicians when the price of gasoline goes up. How realistic is the public's perception about why gas prices go up and what we can do about it.

BLEDSOEWell, it's starting, I think, to get a little more sophisticated. You know, 20 years ago there was a big battle over whether to raise the mileage that American cars got, but in the last decade, with high prices, both parties have now come out largely in favor of increasing fuel economy. There was major legislation signed by President Bush in 2007 to increase fuel economy, and then President Obama increased it further in a deal with the automakers about two years ago.

BLEDSOESo we're actually making some progress. It turns out that what really matters to the economy is the oil intensity of the American economy. That will determine whether high prices push us say into a recession. In 1975, we used 1.2 barrels of oil per thousand dollars of GDP. Today we only use half a barrel of oil per thousand dollars of GDP, and that's gonna go down further. So efficiency is a very important part of reducing the impact of oil on our -- high oil prices on our economy.

BLEDSOEWe haven't done as well at creating substitutes. We have some ethanol in the system, but that's about it. It turns out we still rely on -- 93% percent of our transportation system relies on oil. So creating more substitutes will be an important step in the next few years.

NNAMDIEnvironmentalists tell us that high gas prices would help produce, or help reduce consumption and protect the environment, but then when prices increase, we don't seem to hear anyone cheering. Why not?

BLEDSOEWell, it is really true that not only do they hurt individual families, especially those with lower incomes, which is a very important consideration, but it hurts over overall economy too. I think there's growing consensus that what we need to do is create substitutes and be more efficient in energy use. The Senate is actually debating a bill today on transportation, and one of the amendments is a bipartisan proposal Senator Burr, Senator Reed, Senator Menendez to create infrastructure to use natural gas in transportation, especially in trucks and buses. So there are a number of domestic options that are available to us. It's a matter of making the investments.

NNAMDIHow elastic is the demand for gasoline? Do higher prices have any significant measurable impact on how much gas Americans consume?

BLEDSOEIt's relatively inelastic. By that, I mean, that people -- there are few substitutes available for gasoline, so when prices went up in the last decade, we saw about a five percent reduction in gasoline use with a $2 price rise. So it's relatively inelastic, although it does change with the margins. That's why we need a broader policy to address these issues which I'm working with my colleagues at Bipartisan Policy Center to achieve.

NNAMDIPaul Bledsoe is a strategic advisor to the bipartisan policy center. He joints us in studio. Joining us by phone is Richard Agoris. He is president of the Washington, Maryland, Delaware Service Station and Automotive Repair Association. Richard Agoris, you own six service stations in Frederick and Carroll Counties. Who do you buy your gasoline from, and how much time do you spend shopping for the best prices as the independent station owner?

AGORISWe buy primarily out of three source points. The terminals are located in Fairfax, Va., Baltimore, Md., and Delaware City, De., and with our proximity to Baltimore, the majority of it is from those suppliers based in Baltimore. The second part of the question would be I personally spend, and another person in my business, spends a significant amount of time each day. Various suppliers at these terminals will have certain number of gallons that are available. I kind of compare it to the shopping for airline tickets, you know.

AGORISThey'll have certain gallons available and once those gallons are taken up, if the price is increasing through the day then, you know, you're gonna have to go somewhere else, to another supplier or pay a higher price because the price has gone up. The system as Mr. Bledsoe is speaking on a world level, very tight and the supply is, you know, just slightly larger than the demand currently. That's also, you see that also on a local level, and you see in the fact that with three to four dollar a gallon gasoline, the terminals do not want to store any more than they're pretty sure that they're gonna sell in a very brief period of time.

AGORISThe just-in-time inventory has been implemented over the last five to ten years at the local terminal level, and it makes it very hard to determine exactly when you should but, exactly how much you should buy, and what type of risks you're taking because there's a chance that the next day it might actually go down in price.

NNAMDIAnd of course, if you happen own multiple stations, I guess the process is a little more complicated than if you own one station.

AGORISWell, the logistics are, but the process is still the same, you know. The logistics of getting the product from those terminals to your stations, whether we use our own trucks or, you know, contract an independent hauler.

NNAMDITell me a little about your business model. How do factors like credit card fees and rent or mortgage payments on the gas station property affect the cost of gas at the pump?

AGORISWell, the major cost in an independent or even a chain gasoline station is the credit card fees. That runs anywhere from two-and-a-half to as much as three percent on certain credit cards, and at four dollars a gallon you're talking about 12, you know, 10 to 12 cents for every gallon of gas is going to pay the credit card fees. So that's your number one expense in this business over the last several years.

NNAMDIYou don't simply pass the credit card fees onto the customer?

AGORISWell, it's passed on in the form of the gross margin, what we pay the, you know, the terminal, plus the transportation, and then what we are able to sell it for at retail.

NNAMDIThen after credit card fees, what do you have, salaries, mortgage, rents?

AGORISThe next -- right. The next expense would be salaries and then you've pretty much, you know, summed it up. The mortgage and/or rental payment, if a person owns their property, they are probably paying a mortgage on it as expensive as the properties are. If they're renting their property, that's, you know, a large portion of your monthly expenses. And then you go through your utilities, your taxes, your insurances, and yeah. It's very expensive to run a gas station and remain in compliance with all the laws that are placed upon you.

NNAMDIOnto the telephone. Here's Charles in Mount Rainer, Md. Charles, you're on the air. Go ahead, please.

CHARLESYeah. I'd like to thank the gentleman who was just on for clarifying the point that, you know, gas prices are controlled by the world markets, and every time there seems to be a presidential election within the last 40 years, you've always got somebody coming out saying oh, well, I can get gas down two dollars, or a dollar, and it's just not true, and I wish that there would be more people who would come out who are in the field who would just call these guys what they are, bald-faced liars. Okay? That's all I want to say.

NNAMDIThank you very much for your call, Charles. It's the middle of election season, Paul Bledsoe, and therefore people will be, one, pointing fingers at the administration to blame, and two, if they happen to be running for that office, saying, I can do better. Under an administration led by me, you'll get lower gas prices.

BLEDSOEThere is, as the caller said, there's very little that any politician can do in the immediate term to affect gasoline prices. On the other hand, there is a developing consensus that we should produce more oil domestically, which we've done three straight years, to reduce our import, and we've done that. Our imports are below 50 percent and estimates are that they're going to go down to somewhere in the mid 30s in the next 15 years or so. That's good news because it creates jobs here at home, and it reduces or trade deficit, but it's not going to affect the global price of oil much.

BLEDSOEIt would take huge amounts of new production to do that. And so this notion that politicians can affect the prices is just not accurate. One thing they can do is tap the strategic petroleum reserve, which you did mention, but I think there's a pretty broad consensus that now would be an especially poor time to do that, and the reason is the tensions between Iran and Israel, and the notion is that you would like to keep that reserve in case there really was a large percentage of oil taken off the market, namely Iranian oil.

NNAMDICharles, thank you very much for your call. We got this email from Joe who says "I understand that there is speculation, but is the administration looking at the potential of gas stations gouging consumers?" This question is for both you Paul Bledsoe, and for you Richard Agoris. Why do different gas stations charge different prices? What role does competition from neighboring stations play in how you set your prices, keeping in mind that Joe apparently thinks that we should be looking at the potential of gas stations gouging consumers. First you, Paul Bledsoe.

BLEDSOEWell, regional prices are set by refinery capacity and pipeline supplies, and there have been investigations into market manipulation of the price of gasoline. More focus less on gasoline owners and more focus on oil traders. There's been some thought of legislation to prevent people who aren't actually using the gasoline from speculating in the market, but it's unclear to what percentage that mad add to the overall price of oil.

NNAMDIRichard Agoris?

AGORISOn a local level, Kojo, it would seem that the simplest solution to that, and what my customers have told me over the years, if you do not price in a competitive manner, we're going somewhere else, and, you know, that may not be the -- for this particular emails solution, but on a local level, within every location we have has anywhere from four to ten competing locations within a six-mile radius of those and that's pretty much our, you know, marketing area depending upon the traffic patterns.

AGORISTo specifically address a specific one, I wouldn't be able to tell you that other than the real estate in certain areas, especially around the D.C. beltway, is extremely expensive. The people that own that real estate want the highest and best value for it, and consequently, they've either paid a huge amount to buy a huge amount, multimillions of dollars just to acquire the property, not to inquire -- not to acquire the improvements, the gasoline and the building -- the gasoline dispensing equipment and the building, and/or they're renting that property and the people that are renting to them certainly want to get their investment out. So that may be a function in certain areas.

AGORISIn areas where there's more competition, yes, it does seem to bring the prices down in that area, but even areas that have a lot of competition where the real estate is extremely high, the expenses, the day-to-day expenses are extremely high, you're going to see generally a higher price at the pump in those particular areas.

NNAMDISo if Richard Agoris were to say, well, gas prices are going up, why wait, I'm gonna start charging six dollars a gallon for regular and that'll help me to do a whole lot better, that won't work for you, huh?

AGORISIt works only if you live in a vacuum and have no competition. In, you know, in the places that we particularly market, we have a lot of competition and, you know, the competition is what keeps everything on, you know, as an even keel as possible, because everybody's trying to get the consumer the best benefit because they want to keep those customers coming to them. It's not like you don't see those folks every day.

AGORISThey're your neighbors, they're your friends, they're, you know, the friends and neighbors of your co-workers. In our business, everybody knows us so to speak, so, you know, we have to take that into account in these pricing decisions also. We also have to take in account that if we don't price the product at a point where we can at least cover our costs, we will soon be out of business.

NNAMDIHere is Bob in Chantilly, Va. Bob, you're on the air. Go ahead, please.

BOBI worked for Mobile Oil for 37 when, for an oil broker for two years, and for Exxon Mobile for about four. Now, the last ten years I was following crude oil prices that that I would predict our marine fuel prices, and I got pretty good at it. And I'll tell you how you can bring the price of crude oil and gasoline down almost immediately. If you can put new oil, incremental oil, into the system, you'll scare the members of OPEC and they will start pushing oil in order to get a $105 a barrel crude oil. They'll push their oil into the market.

BOBOPEC is not in business of producing oil. OPEC is in the business of stopping production of oil because they know once the price starts down, who knows where it stops. When Bush W. was president the first time, the oil price had gone up to $32 a barrel in the last two months of Clinton's administration. People thought that was high. Now we know that wasn't high, but Bush was an oil man. He wasn't too good at it, but he said, we're gonna drill in Anwr, we're gonna drill in the in Gulf, we're gonna drill for natural gas.

BOBWe're gonna have either natural gas or a crude oil equivalent of about four million barrels a day. That's new oil. In those days, it was about 80 million barrels a day was the whole (unintelligible) .

NNAMDIAnd the prices started going down?

BOBWhat's that?

NNAMDIThe prices started going...

BOBYou get the price going down, and if you...

NNAMDIOkay. The reason I interrupted is because we're running out of time, and I'd like to as Paul Bledsoe what role do things like increasing domestic oil production increasing maybe fuel efficiency play in keeping gasoline prices down, specifically Bob's question about bringing new oil into the market.

BLEDSOEThe caller's right that OPEC does have a set price that they target for oil in the global market, and they're target price is between 80 and a hundred dollars right now. He's absolutely right about that, that they want to keep the price high. They don't want it too high however. If it gets too high, they're worried that alternatives in efficiency will reduce overall demand. So there's a little bit of a game there. It's unclear what new oil could be brought on the market quickly enough to affect prices now.

BLEDSOEIt may be that if we increase production three or four million barrels over a long period of time, we might be able to affect prices at the margin, but it's a global market. The Chinese, the Indians, the Brazilians, people around the world are demanding more and more oil, so ultimately I think the general view is that prices are gonna stay high for a long time.

NNAMDIPaul Bledsoe is strategic advisor to the Bipartisan Policy Center. He's a former Clinton administration official. Paul, thank you for coming in.

BLEDSOEMy pleasure. Thank you, Kojo.

NNAMDIRichard Agoris is president of the Washington, Maryland, Delaware Service Station and Automotive Repair Association. Richard Agoris, thank you for joining us.

AGORISThank you, Kojo.

NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.