Pains at the Pump

Raise gas prices, commit a felony

Excerpt:

The inconvenient fact is that there's no evidence of price rigging by Big Oil or the tens of thousands of independent service station owners across America. The causes of higher gas prices include $65-a-barrel oil caused by rising global demand and geopolitical tensions, a record high U.S. gasoline consumption of 380 million gallons a day, and refined gasoline shortages caused by Congressional rules and mandates. Far from withholding production to raise prices, U.S. gasoline production of 8.8 million barrels a day is higher than any time in history and refineries are getting more gas per barrel of oil than ever before.


This isn't the first time a spike in gas prices has prompted Congress to allege price fixing. It's not even the second, third or 10th time. Since the OPEC oil embargo some 34 years ago, Congress has requested more than 30 investigations into whether energy companies have conspired to inflate profits. In nearly every instance, the Federal Trade Commission or the Department of Energy has found no evidence of price fixing. Only last year, Congress ordered the FTC to investigate whether Big Oil had manipulated prices after Hurricane Katrina in 2005. The agency found "no instances of illegal market manipulation that led to higher prices."


What does "gouging" mean anyway? No one on Capitol Hill can answer that question. The House bill prohibits energy companies from charging a price that is "unconscionably excessive." There's a precise legal term. It further explains that it shall be a crime whenever "the seller is taking unfair advantage of unusual market conditions" or "the circumstances of an emergency to increase prices unreasonably."


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If Congress wants to locate genuine gas price villains, it should look in the mirror. Domestic refining capacity is stretched in part because environmental laws discourage the building of new refineries. Meanwhile, new mandates for ethanol and other "boutique" gasoline blends make it harder for the industry to meet refining shortfalls. The Lundberg Survey estimates that the ethanol mandate alone adds 10 cents to each gallon, and that 36 refinery snafus this year have cut U.S. gas supplies by about 8%. Refiners are also currently switching to mandated summer gasoline blends--another contributor to the current price spike.

Comment: Good read / Economics 101