May 11, 2007

It Must Be Spring

If one sees Democratic politicians gathered for photo ops around gas pumps, then spring has finally arrived. Gas prices have risen above $3 per gallon again, and the new Democratic majority wants to do something about it. Unfortunately, the policies they promise have little to do with the actual problem, and the solutions that would work are ones they will never consider. It demonstrates that the Democrats have little understanding of business practice, supply and demand, or commodities markets.

I explain the problem at Heading Right, and lay out the solutions.


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Comments (11)

Posted by rbj [TypeKey Profile Page] | May 11, 2007 9:04 AM

Didn't the Democrats used to advocate a $0.50 a gallon hike in the gas tax, in part to make us more fuel efficient (higher prices = lower demand)? Shouldn't they be cheering this, as people aren't buying so many Hummers now?

Posted by RBMN [TypeKey Profile Page] | May 11, 2007 9:05 AM

The way I heard "big oil" explain it, was that their business cycle is on the order of seven to ten years. Large investments they make today don't bear fruit for about seven to ten years. So they can receive several years worth of profit over just two years. That looks like they hit the jackpot, but if they don't take that money and reinvest it in the next source of oil, their business cycle is over. Congress wants to take their seed corn away.

I notice that Congress is not proposing a "windfall profits" tax on voters who sell their house after about ten years.

Posted by ZeteBoy [TypeKey Profile Page] | May 11, 2007 9:30 AM

$3 a gallon....if only. Up here in Canada its $4.21 today when correcting for the US vs the Imperial gallon measurement that we use up here.

Posted by TomB [TypeKey Profile Page] | May 11, 2007 9:57 AM

Market forces? Give me a break! Last time oil was around $60 per barell, the gas at the pump was below $2. It is a cartel of big oli companies at their best (I mean worst). Guess who is pocketing the difference?

Posted by quickjustice [TypeKey Profile Page] | May 11, 2007 10:09 AM

Today's New York Sun has a detailed explanation. We haven't built any new oil refineries in twenty years, and environmental restrictions prevent us from building any more.

Existing refineries are at capacity. If even a single one of them goes down, gas prices rise disproportionately more than the price of crude. Right now, several refineries are down due to lightening strikes and other similar events.

In addition, refineries shift production from winter gasoline to summer gasoline at this time of year for environmental (clean air) reasons, requiring system-wide shutdowns. There simply isn't enough summer gasoline right now to meet demand, so prices are up.

Until we build more refineries, we are vulnerable to these price spikes.

Posted by RBMN [TypeKey Profile Page] | May 11, 2007 10:28 AM

Re: TomB at May 11, 2007 09:57 AM

The gasoline market is not the same thing as the crude oil market. Gasoline has different artificial barriers to lower prices.

Posted by TomB [TypeKey Profile Page] | May 11, 2007 10:34 AM

So why we don't even try to buy the damn gasoline at the "open market"? Somebody? anybody?

Posted by gmax [TypeKey Profile Page] | May 11, 2007 10:38 AM

TomB you seem to have a dense fog enveloping you. I dont know if you will get it until the air clears around you, but it has been explained in some detail to you now at least twice.

Posted by rbj [TypeKey Profile Page] | May 11, 2007 10:52 AM


Where, exactly, are we supposed to buy the gasoline (not crude oil) from?

Maybe Mexico or Canada -- but I think their refineries are at capacity too. Anywhere else and you've got high shipping costs. Oh, and their refineries may not be producing the very specific blends that are needed in certain areas of the US for air pollution control:

Not to mention that India and China are now major users of gasoline as well.

Posted by TomB [TypeKey Profile Page] | May 11, 2007 10:53 AM

I don't know about the dense fog, I just see two things: Oil prices are consistently down, gasoline prices are consistently (I mean long term) up. No fog here. And than there is a number of lame explanations: The capacity, the fires, the draught, the floods, the environmentalists. The only thing we don't seem to mention is that somebody is pocketing some HUGE cash here. So, where is the free market to my rescue? Where is the competition?, Where is the cheeper foregin gas, if we can't make our own? I don't really care, I bicycle to work in Summer, but this doesn't look like market forces to me.

Posted by docjim505 [TypeKey Profile Page] | May 11, 2007 12:11 PM

I've got an idea for lowering the price of gas quickly and dramatically:

END THE F***ING GAS TAX! If the feds did it and could get that gang of thieves in Raleigh to go along, the price of gas in No. Carolina would fall (IIRC) by $0.42 per gallon overnight!

But, as Governor "Tax Hike" Mike Easley told us when the gas tax was due to be raised last year, the government NEEDS that money to pay for, um, to fund, er... Well, important stuff!