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Congress Blames Gas On Others

CNN had a scathing article about how politicians are chiefly responsible for the high price of gasoline. The EIA (the Energy Information Administration) announced that oil and gas inventories rose unexpectedly, and the price of crude oil dropped 3% to $72 a barrel. Refinery production was also higher than anticipated.

While crude pricing went up 21%, why have gas prices gone up 37%? Why are gas prices hanging so high over the country, at a national average of $2.917/gallon, just shy of the all time high after Hurricane Katrina of $3.06? Critics say Congress bungled the timing of certain measures designed to mitigate the energy crunch, not make it worse. For example, they phased out the use of oxygenate MTBE (Methyl tert-butyl ether) and replaced it with Ethanol, mainly because MTBE was found persistently in ground water and has been deemed to be a carcinogen. The problem is the switch was timed just before a seasonal demand spike. Fewer people are directly concerned about diesel fuel, but the new sulfur requirements were handled much better.

Will politicians of both parties do the "Kabuki dance" and continue to blame each other, and various excuses for the problem? How high can gas prices go and what can be done about this?

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Americans have always been fortunate with low gas prices. For example, this article shows how much a gallon costs in Europe – try $6.62 a gallon. Just like Americans complain about outsourcing but enjoy shopping dirt-cheap Chinese-manufactured goods at Wal-Mart or Target, they have been enjoying for too long the benefit of driving SUV’s, trucks, and minivans, when the rest of the world is going mini, diesel, or ethanol. Oh yes, and the sales of hummers have tripled in tripled, according to an article by WSJ (subscription required). So I would say let the high prices roll. Maybe the United States will see how the other 6 billion live and maybe figure out alternatives to oil as far as cars are concerned.

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Multiple Issues Here by Rapier

The MTBE issue was part of it. Refinery capacity that is still offline from the hurricane is part of it. Surging demand in China and India is part of it. And, the seasonal turnover from winter to summer blends is part of it. In addition, there is also a low sulfur gasoline requirement (in addition to low sulfur diesel) that is an issue.

I wrote a primer on gasoline pricing a while back:

A Primer on Gasoline Pricing Another Uninformed Consumer Watchdog

I also have 2 graphs in this essay that show a huge reason for why prices have gone up so much:

Another Uninformed Consumer Watchdog


Great read, more balanced view. Obviously, no solution is perfect. I just can’t stand the ‘we are doomed, gas prices are high attitude’. Especially when they are not THAT high. There are alternatives. And there is nothing politicians can do, other than encourage an honest debate and at the same time provide incentives for alternatives. Certainly they should not even consider ridiculous $100 or $500 handouts.

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Market Prices by Occams

I think gas prices have very little to do with the cost of production. Gas is a commodity in a free market. The highest price will be charged that can survive in the face of competition.

Consider a hypothetical situation. If America could get oil cheaper than most other countries, for example from oil fields in Alaska or Texas, should it charge a price based on cost, or should it tax the gas up to the international parity price. If it does not apply the tax then effectively the government is subsidising local consumption – because it could sell it on the international market.

I can see no valid reason for Americans to pay less than Europeans for gas. Of course, there is an invalid political reason.

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