Peak Oil News: Gas price surge no conspiracy

Friday, September 02, 2005

Gas price surge no conspiracy

The Arizona Republic

You may hate $3 a gal., but it beats no fuel available at $2

It is one thing to witness the destruction of a major portion of U.S. fuel-production infrastructure by Hurricane Katrina and conclude, logically, that the storm's effects are going to hit consumers at the gas pump sooner or later.

It is another matter entirely to see gas-pump prices leap 30 to 50 cents per gallon overnight, almost before the remnants of Katrina had blown out over the East Coast.

Consumers are outraged, of course. Who wouldn't be?

Most of the gasoline in underground tanks at the corner gas station was there well before Katrina shut down a single Gulf Coast refinery. Thus, the shocking price spikes that began greeting us on Wednesday and Thursday are de facto evidence of gouging. Are they not?

Well, no. They aren't. At least they aren't evidence of gouging on the part of station operators, who know full well that their next tab for a tanker full of regular is going to shock them out of their socks. That is, assuming the almost certain depletion of gasoline supplies nationally doesn't leave them off the delivery list.

Infuriating as it may be, the rapidly rising cost of gasoline may be explainable as "gouging" - that is, reckless demonstrations of appalling greed - in only a very few circumstances.

In 2003, state Attorney General Terry Goddard investigated more than 600 complaints of gouging following the summer pipeline break that threw Phoenix into a gas-buying panic. Fewer than 10 of those complaints would have violated anti-gouging legislation in states that enforce such laws, which is a good argument in itself for avoiding such well-intentioned but largely futile laws in Arizona.

As Jerry Taylor of the CATO Institute points out, there are two ways to ration an increasingly scarce commodity like automotive fuel:

• You can regulate price artificially, thus assuring its scarcity.

• You can allow the price to find its balance between supply and demand, thus helping assure a relatively uninterrupted supply.

At $3-plus per gallon, that is an infuriating choice to have to make. But it beats the unanticipated consequences of regulation.

"There's no mystery about what happens when you regulate scarce commodities," Taylor says. "The commodity disappears."

It is important to remember that the current spike did not occur in an economic vacuum. For more than two years before the Katrina disaster, oil prices have been marching consistently toward Tuesday's eyeball-glazing $69.81 per barrel. All that while, U.S. oil consumption steadily rose, completely ignoring skyrocketing pump prices that averaged $2.61 nationally just before Katrina.

And we're not alone. India and, especially, China have experienced booming economies the past three years, creating a giant sucking sound at the end of the world's fuel pumps.

Worldwide, excess oil production capacity has averaged just 1.5 million barrels per day, which is less than 2 percent ahead of demand. In other words, it doesn't take much more than one big storm to set the entire worldwide industry on its head.

Now, post-Katrina, the ceiling for price rises is anyone's guess. Some experts quoted in Thursday's Wall Street Journal on the subject, such as Marshall Adkins, energy-research director for Raymond James & Associates, predict $4 per gallon for gasoline. Others see prices rising to the point that recession finally rears its ugly head and halts the increase in energy consumption (and energy costs) all by itself.

In the meanwhile, consumers must contend with jaw-dropping overnight price hikes and the specter of more to come.

It's infuriating. But it's not a conspiracy.


At 8:48 PM, September 02, 2005, Blogger Jimmy said...

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