There really is a lot to America's energy policy and you said a lot that got me thinking and researching. Fortunately I managed to keep any of the new information from changing my opinion (hey, I'm honest). You were kind to comment on my "scholarship". Check out
Free lunch --these days
everyone's a scholar.
I had a hard time following all the things you said -- what I got was that the market price of gasoline is higher than it's supposed to be because US refining capacity was too low and the solution was to punish oil company owners. You just can't be saying that.
Let's focus, The price of gas is set by sellers and buyers, so when you drive an extra block to save a couple cents/gallon, you have manipulated the price of gas.
OK, the refinery owners have something to do with it. So go own a refinery. I own part of a refinery and you can too. Last week I bought a few shares of VLO for $70.80/share (but you can probably find others that are cheaper). We at VLO are working real hard to make more gasoline to drive the price at the pump down-- but if I start hearing too many people saying that I'm some kind of crook, then forget it. I honestly think that if everyone put money into building more refineries instead of putting their mouths into more laws, then we'd have cheaper gasoline. We'd also be richer as VLO is selling today at $78/share (10 percent profit in a week is pretty good).
So let's decide if this is really a crisis. The real price of gas went up in 2000 so Clinton sold off the reserves to party hacks--so the price goes up even higher and then we didn't have reserves even. What finally made the price of gas go down was the slowing of the economy after 9/11. So then everyone starts belly-aching about the jobs crisis. So now the economy's picked up and so has the real price of gas. Personally, I like the gas crisis better than the jobs crisis.
well.. lets see how we untangle this.
First, The primary force in the price of a gallon of gasoline is the price of a barrel of crude oil.
There are significant price fluctuations based on refining capacity especially as we come into the summer months and many states switch to the EPA mandated additives. This always causes a spike in gasoline price in April and May since this law took effect and its due to the shortage of both refining and pipeline capacity that creates the opportunity for local supply disruptions that have to be made up by expensive trucking and rail transports of fuel to fill the holes. Still, in the grand scheme of things we are discussing this is about 20-30 cents. Call it the difference between $1.25 and $1.50 in your chart below.
What is happening right now is that the Oil Exporting Countries (OPEC) and others are selling oil into the futures markets and spot markets at $56 per barrel rather than the expected $28 target price or the $18 - $20 oil glut prices like in 1999. This money is going primarily into the coffers of Saudi Arabia, Great Britain, Venezuela, Mexico and Russia among others to finance what ever silliness they might cook up but it represents a true transfer of US wealth to over seas interests.
On top of this, there is a markup being extracted by the oil traders who are paying high prices for crude oil but are extracting about 5 times the normal margin on each barrel of crude as a risk premium or whatever. This premium has been rising in the face of declining risk, and is due to the psychology and nature of a speculative bubble matched against an inelastic demand curve for oil.
Elastic demand means that when the price goes up the quantity purchased goes down proportionally. Inelastic demand means that when the price goes up or down the demand stays almost the same, often because the good is essential and consumed at a constant rate.
Oil demand is fairly inelastic in the short term, people have to go to their jobs and fly places and trucks have to deliver goods. In the longer term, substitutions can be found to avoid buying gasoline as a fuel or transporting by one means over the other, but most normally, the high cost of fuel causes the demand to decrease by costing jobs and shutting down our economy stopping folks from needing to get to jobs and deliver things. So high fuel prices = recession after a time lag.
We might call this the natural order of things, except if folks are manipulating the market as evidenced by the "premium" that the middlemen are able to charge at the moment. This premium for "risk" is at an all time and seemingly unsustainable high. Normally, the market would undercut someone asking "too much" and thus hound these louts out of the scene, but for some reason these high markups are being protected and not undercut.
This requires some sort of shortage in the market to deny traders who would undercut the "price" any access to do so. This is the question, how is it that when inventories are high and OPEC is producing at its maximum, that a shortage is managing to stay in the market? And folks are starting to think that this shortage is being created folks moving the pieces on the board so that it occurs despite the actual supply of oil. Hence the charge of market manipulation.
Now as to the seriousness of this, you have the chart right here to show what happens to our economy. The economy went nuts while fuel prices were declining in the late 1990's and when in 1999 they started rising, which touched off the recession that George Bush had to cope with starting in 2000. Prices came down after 911 but the rest of the economy was in shambles so it took some time for the natural upside of the recession to end and this is why jobs growth has generally been anemic despite Washington taking to a fiscally stimulative policy of large tax reductions. At the current price levels and the higher ones the traders are speculating they can perhaps claim in the next 6 months, the net effect of lower taxes will be wiped out and the economy will plunge back into recession without fiscal stimulus (not alot of hope of cutting taxes more), and very little monetary stimulus (interest rates are already low) being available to correct, so it could look very very bad this time next year.
