DPF: Gas Prices

First, anyone calling for a 'windfall profits' tax is insane. Reduce oil's tax subsidies or rebates, but raising taxes on corporations out of spite? Where's our capitalist spirit?

Second, there are two ways to reduce the price of gasoline; increase the supply or decrease the demand. It's simple economics. Anything else is just window dressing.

There are no realistic short-term answers. Sen. Frist's (R-TN) $100 rebate was ridiculous (he has retracted it). The cost of enacting such a measure also makes it untenable (that will change when electronic financial transfers become commonplace). Sen. Bob Menendez's (D-NJ) sixty day 'gas tax holiday' of 18.4 cent relief won't overcome market forces. It may play well at home (Memorial Day is a big shore weekend in Jersey), but prices will correct before the sixty days conclude. More than likely, prices will over-correct because of increased demand, making gasoline more expensive with a tax hike in the middle of the summer. Labor Day could be in the backyard...

Here are the facts:

The situation (with oil) is especially severe in the United States, and because the country consumes 25% of the world's petroleum, its problems spill over into the global market. Not a single new refinery has been built in the United States for 30 years, and improvements to existing plants have failed to keep up with either growing demand or increasingly tough environmental standards. The United States in the only market in the world with a net deficit in refining capacity (which amounts to about 20 percent of domestic demand). The decentralization of the United States' regulatory system further complicates the problem. Each state establishes its own quality criteria for gasoline and other petroleum products, creating a crazy quilt of inconsistent regulations with curious results. For example, gasoline produced in one state may not be sold in another. As of this writing, 18 different types of gasoline are sold in the United States. - Leonardo Maugeri, Foreign Affairs, March/April 2006

So back to my first point; the record profits of oil companies have lead to record investment in exploration and procurement technology. Previously inaccessible regions, such as the Sakhalin Islands off northeastern Russia and the Arctic National Wildlife Reserve, are now accessible. The 'evil oil companies (jape), who are subjected to OPEC price controls, sell oil; they increase their capacity to harvest oil so they can sell more of it, but it still has to be processed. The key is US domestic refining capacity. Thirty years, not a single new refinery...

Related Material:
Oil Options
DPF: Oil Supply
DPF: Dispelling Popular Fallacies