• Gasoline prices: Ouch Gasoline prices: Ouch St. Louis Post-Dispatch Friday, Sept. 2 It they seems selfish to complain about high gasoline prices while people on the Gulf Coast have lost everything own. Still, the record price spike this week
• Gasoline prices: Ouch
Gasoline prices: Ouch
St. Louis Post-Dispatch Friday, Sept. 2
It they seems selfish to complain about high gasoline prices while people on the Gulf Coast have lost everything own. Still, the record price spike this week deserves comment.
While there are undoubtedly cases of price gouging, a very real disruption in the supply of oil is the main driver in this week’s 57-cent rise in gas prices. Gasoline supplies were tight anyway. Cut the supply – right before the Labor Day weekend – and prices are bound to soar.
The U.S. produces about 40 percent of the oil it consumes. A bit less than a third of that comes from the Gulf of Mexico, and hardly any of it is flowing this week.
That’s why President George W. Bush was wise to tap the nation’s strategic petroleum reserve. It’s there for emergencies, and this is a whopper.
If that were the only problem, we wouldn’t see prices this high. It’s not.
Before Hurricane Katrina, the nation’s refineries were operating at roughly 96 percent of capacity. In fact, production hiccups at refineries were responsible for much of run-up in gasoline prices in the weeks before Katrina even had a name.
Then Katrina knocked out at least eight of 14 refineries on the Gulf Coast, along with fuel pipelines. Those gulf refineries produce about 10 percent of America’s fuel, and there is little idle capacity to take up the slack. So, for the moment, America can’t produce enough gasoline, even with oil from the strategic reserve.
The wholesale price of gasoline is set on the commodities markets. Given the size of those markets, they would be difficult to rig, even by a major oil company. However, all markets are subject to the occasional panic. This week, the wholesale price of gas jumped 28 percent. It’s hard to tell how much of that spike reflects panic, which could fade in a few days, and how much reflects rational reaction to a supply shock.
However, the problem should ease in coming weeks as the Gulf Coast begins to recover. Refineries and pipelines should restart as electricity is restored. The Coast Guard reported that 20 oil rigs had sunk or were floating loose in the Gulf of Mexico, but initial reports from oil companies indicate that damage to overall capacity is limited.
In the meantime, there will be pain at the pump. A gallon of gas may “even out somewhere around $3.50 to $4,” said Charles Maxwell, a senior analyst a Weeden & Co. in Connecticut, according to Bloomberg News.
That would top the inflation-adjusted record of $3.03 set in 1981. Prices in St. Louis averaged $3.00 Thursday, according to AAA Auto Club.
All this is prompting calls for gasoline price controls in some places. That would be a good idea only if you long for a return to leisure suits and the long gasoline lines of the 1970s.
Gas is expensive because there isn’t enough to go around. Those high prices encourage conservation and reduce demand.
Cap prices and oil companies have less incentive to produce the stuff and may hold back on production until caps are lifted. Rather than cap prices, we’d be better off hopping on buses or dusting off the old bicycle. Lowering demand lowers prices.
Besides, the gas price spike may be brief anyway. If that’s the case, the effect on the economy could be a mere blip. After all, the price of gasoline doubled in the past two years, before this week’s spike, with only a slight effect on consumer behavior.
Economists note that, until now, fuel prices have been rising because of healthy economic growth in America and Asia. That’s a good thing, not a bad one. But $3.50-a-gallon gasoline driven by a shortage could sap consumer confidence and slow growth.
There are some lessons here: One is that America needs more refineries; we haven’t built a new one since the 1970s. Oil companies have been reluctant to step in. It may be time for the government to dangle a carrot.
But the main lesson is that we must become less dependent on oil. It makes us vulnerable both to Mother Nature and to the fickle, fanatical and fatal politics of the Middle East.
Since 40 percent of our oil runs cars and light trucks, the logical step would be to mandate more fuel efficiency in new vehicles.
The Bush administration took a baby-step in the right direction last month by proposing a slight tightening in standards for SUVs and other light trucks. But it spoiled the move by exempting Hummers and other such monsters. We need much tighter fuel standards for vehicles of all sizes, phased in gradually to let automakers adjust.
Mr. Bush’s job approval rating dropped to 45 percent in the latest Washington Post/ABC poll. Gas prices are part of the cause, as his misadventure in Iraq.
It is unfair to blame Mr. Bush for today’s gasoline prices. Little he could have done over the past four years would ease our current mess.
Our oil addiction requires a long-term cure, and it’s up to the president to begin the treatment.
If we’re still dangerously on the hook 10 years from now, then Mr. Bush will deserve his share of the blame.
