After posting stellar profits the year before, American refineries are steadily losing money. Despite the cost of gasoline, refineries are posting losses for the first quarter, and almost all refineries are losing money faster than they made it. Experts are saying that the refiners are caught in a "double bind." The price of oil, their main material, is rising due to strong global demand, and yet consumption in the United States has dropped due to conservation measures enacted and slower economic growth.

While companies in trouble tend to raise prices to spark revenue, the refineries have been unable to raise their product's cost due to the rising cost of oil. Oil prices have doubled in the past year, and wholesale gasoline prices rose only 39 percent. For decades, oil prices were linked almost directly with the ups and downs of the American economy. However, in recent years, oil prices around the world have skyrocketed upward due to heavy demand from China, Russia, and the Middle East.

Gas prices rose again on Tuesday, settling on a nationwide average of $3.73 per gallon, according to AAA, and this is yet another record. Diesel prices, critical to the auto transport industry, set record highs as well, falling at $4.39 per gallon, and this has the trucking industry in a bind. The IEA reduced its forecast for global oil demand for the 2008 fiscal year, due to consumption drops by over 300,000 barrels per day.

However, despite this conservation effort, global consumption is slated to rise from just over 1 million barrels per day to 87 million barrels per day. This is mainly due to the heavy consumption of China, and in the U.S., there is no longer a doubt that consumers are responding to the higher cost of fuel by driving less. More bicycles are seen nowadays, and as such oil consumption in the powerhouse nation fell by 3.3 percent in March, compared to March of 2007.

But that decline will be more than offset by growth from developing countries. Consequently, global consumption is expected to rise this year by 1 million barrels a day, to 86.8 million barrels a day. Nearly all that growth will come from China, the Middle East and Russia.

But despite the lack of demand for gasoline, the price of oil is still rising, which means more costs at the pumps. The cost of oil represents 76 percent of the price of gas at the pump, while 12 percent accounts for state and federal takes, and refining and distribution make up the rest.

But oil companies are still making big bucks, which is leaving small-time refiners like Tesoro and Sunoco in the red. Exxon Mobil, with its integrated distribution and refining methods, has posted monstrous profits, while little refineries are going broke. Sunoco, for instance, lost $123 million in the first quarter along, whereas Tesoro posted an $82 million loss, compared to the profits of $116 million the previous year.

Despite this, some consumer advocates state their suspicions about refiners who are currently cutting production at a time of record gasoline prices.

Some consumer advocates say they are deeply suspicious about the behavior of refiners who are sharply cutting production at a time of record gasoline prices.

"They are not sitting in a boardroom and colluding, but they can see easily enough where their benefit lies, and it doesn't lie in a price war," said Judy Dugan, the research director at Consumer Watch. "In a truly competitive market, you might see some of these providers try to improve their market share by reducing prices. But this is not happening. They are all better off by restricting production to keep prices up."

"We let them accumulate market power through the wave of mergers, and we've been paying the price in the last five years," says Mark Cooper. "If there is a small number of players in the market, they learn from each other's behavior."