A More Refined Look at Gas Prices

On a day when gasoline prices are already climbing and are expected, at least in western Wisconsin, to continue climbing by as much as $0.30 per gallon by the weekend, it bears looking at why.

One of the first excuses always trotted out by the Bush Administration whenever the cost of gasoline is addressed is a lack of refining capacity. This basically means that the White House is tacitly admitting that crude supplies are not in jeopardy, but the oil companies' ability to turn it into gas is not sufficient.

Funny that, given this 2001 report from Senator Ron Wyden (D-Oregon):

In the mid-1990s too much refining capacity, not too little, concerned the nation’s major oil companies. At that time, the oil and gas industry faced what they termed “excess refining capacity,” a circumstance they viewed as a financial liability that drove down overall profit margins. The industry reduced the total amount of potential supply by closing down more than 50 refineries in the past decade. Since 1995 alone, 24 refinery closings have taken nearly 830,000 barrels of oil per day [out of production].

In other words, the U.S. had additional refinery capacity that was taken off line due to a depressing effect on the profit margins of major oil companies. Given that petroleum and, by extension, gasoline, is the very lifeblood of our economy, this seems like rather poor planning on the part of the major oil companies.

From the Wyden report:

“As observed over the last few years and as projected well into the future, the most critical factor facing the refining industry on the West Coast is the surplus refining capacity, and the surplus gasoline production capacity. The same situation exists for the entire U.S. refining industry. Supply significantly exceeds demand year-round. This results in very poor refinery margins, and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline.”
Internal Texaco document, March 7, 1996

A reduction in supply, which would then drive prices higher, negatively affecting every aspect of our economy. Of course, rising energy prices affect the poor and middle class the most. The groups that are best able to weather high energy prices are business, which can pass the price increases along, and the wealthy. I call those two groups the "have's and the have-more's", Bush calls them "his base".

It's interesting to look at some of the factors which contribute to higher gas prices, such as Middle East instability, lack of fuel efficiency standards, lack of adequate emergency response when the U.S port which imports the most oil is devastated by a natural disaster and lack of viable alternative energy sources, to name a few. Funny how each of these things can be linked to a Bush (former oil executive) or Cheney (former oil executive) policy stance, isn't it?

Policies like the recently passed Energy Bill:

Whether there will be more refineries and domestic oil production depends on industry’s response to the Energy Act’s incentives. In addition to financial incentives, the Act requires an inventory of offshore resources, which signals the starting point for future offshore oil and gas leasing, exploration and production in areas currently off limits to leasing and drilling.

Interesting, again, that, after closing down a large chunk of refinery capacity in the 1990's, the energy companies are granted taxpayer-funded financial incentives to re-build new capacity in response to rising demand, while also helping the push to open up environmentally restricted areas for new exploration. Basically, the Bush Administration has let the American consumer foot the bill for changes for the purpose of better oil company profits and then, when the prices driving those profits become intolerable, the taxpayers get to pay again to undo those changes. I guess the "Free Market" is only for those without lobbyists and political connections.