Bush and Gas Prices: "Aspirin to take care of prostate cancer"

By: Lowell
Published On: 4/26/2006 6:44:51 AM

According to Philip K. Verleger, a leading oil consultant, President Bush's proposals for dealing with $3 per gallon gasoline prices are almost completely worthless.  Verleger goes so far as to describe them as "more or less like prescribing aspirin to take care of prostate cancer."  How funny. How true.

C'mon now: suspending shipments of around 70,000 barrels per day into the U.S. Strategic Petroleum Reserve (SPR)?  Is Bush kidding?  Seriously, that's a complete joke, given that U.S. oil consumption is greater than 20 MILLION barrels per day (300 times greater than the amount of oil going into the SPR).  In other words, 70,000 barrels per day is almost literally a drop in the bucket, and the price impact on gasoline prices is unlikely to be more than 1 or 2 cents per gallon.  Hey, don't spend it all in one place! Ha ha.

Bush's other proposals are just as ridiculous. Price fixing?  Look, I dislike the oil companies as much as anyone.  ExxonMobil, for instance, is absolutely heinous on the environment and human rights issues.  However, it's a "successful" company, making all-time record profits and showering its former chairman, Lee Raymond, with a $400 million retirement package!  No wonder Raymond and other Big Oil executives refused to be sworn in when they came before the Senate Energy and Commerce committees last November.  What do these people have to hide?  A great deal!

[UPDATE:  By the way, in the interest of fairness and balance, Tim Kaine talking about using "anti-gouging laws" and opposing a gas tax isn't going to solve anything either. Sorry, Tim, I love ya but I don't agree with you on this one.]
Having said all that, these allegations of "price fixing" are utterly and completely ridiculous.  Let's go to "Occam's Razor," the logical principle that says you should always select the simplest explanation for a pheonomenon, all else being equal.  And in this case, it's very simple why gasoline prices are $3 per gallon:

1) Crude oil prices, driven by inadequate world spare production capacity and surging world oil demand, are now over $70 per barrel, nearly triple what they were 3 years ago.  And crude oil makes up about HALF the price of gasoline in this country, according to the U.S. Energy Information Administration. That's most of the story right there.

2) Taxes, although very low in the United States compared to every other advanced, industrialized country, make up about one-fourth the price of gasoline.  In comparison, European gasoline prices of $5 or $6 per gallon are closer to 75% tax.

3) Refining costs and profits make up under one-fifth the price of gasoline - perhaps 60 cents per gallon currently.  That may sound like a lot, but it's not.  Refining crude oil into products - gasoline, diesel, heating oil, jet fuel - takes expensive equipment and labor.  In addition, creating gasoline blends that don't cause horrendous summer smog costs money too.  [Of course, Republicans like to blame environmental protection for everything, but think of the higher costs incurred by people with asthma, emphysema, and other breathing problems due to air pollution?  Not to mention the increased rate of lung cancer  among all of us.]

Meanwhile,, since nobody wants a refinery built in their backyard (NIMBY'ism run amok), we don't have a lot of extra refining capacity in this country.  To make matters worse, the U.S. refining sector is still recovering from Hurricanes Katrina and Rita last fall. Those hurricanes knocked out around 8% of U.S. refining capacity - 1.8 million barrels per day - leaving essentially no spare refining capacity in ths system.  Not surprisingly, prices spiked at the time, and many people complained about "price gouging," although there was almost no evidence of it then - or now.

4) Finally, distribution and marketing costs make up about 12% of the price of gasoline.  That's low, and certainly no more than other products - food, computers, furniture, whatever.

In sum, the Occam's Razor explanation as to why "gas prices are so high" is this: crude prices are above $70 per barrel, refining capacity is struggling due in large part to last fall's hurricanes, and it's that time of year to switch over to summer gasoline specifications for smog. 

Those three factors probably explains about 95% of the current price of gasoline.  But are Bush and the Republican Congress Critters doing anything to deal with any of the main causes of high gas prices?  Are you kidding?  Why take any action that might actually ACCOMPLISH something - taking strong measure to cut U.S. oil demand, for instance - when you can demagogue an issue?  Why do something useful when you can make almost meaningless gestures, like suspending deliveries to the Strategic Petroleum Reserve, on an issue that's: a) pissing people off; and b) threatening your political fortunes?

Gee, I wonder.

Oil & Gas: Long-Term Contribution Trends


Comments



Anti Gouging is GUT WETCHINGLY STUPID (Josh - 4/26/2006 2:50:53 PM)
Face facts, folks.  This is the end of the era of cheap gas.  It won't come again.  Worldwide demand for oil will only continue to increase and supply can't.  It's not like we can pray and suddenly god will stick a bunch more oil in the ground.  It's done.

"Free" market cult has been trumpeting for years that once we reach this point, market forces will kick in and energy efficiency and alternative fuels will take over. 

Well, this is the beginning of a new era and if we don't want to spend the 21st centry in some Mad Max post-apocalyptic hell, we'd better find new ways to feed the energy need.

Apollo Program Now!

I expect this from Bush, but I'm egregiously disappointed in Tim Kaine.  Bad Governor!  Bad Governor!



Industry Structure (PM - 4/26/2006 4:46:15 PM)
For what it's worth to the current debate -- the FTC investigated "big oil" for about the whole 1970's, mostly under Carter and an extremely liberal FTC chairman (Mike Pertschuk).  Pertshuck was very big on antitrust enforcement.  They never found anything to pin on the industry, e.g., collusion.

We need lots of repairs to the consumption side.