The Republican presidential challengers and the Democratic administration are slugging it out over the price of gasoline and how much impact the U.S. president has on that price.
Neither side seems to have a firm grasp of oil price or market fundamentals, so the debate rages on while oil and gasoline prices continue to rise.
I do have solutions for high gasoline prices – quit driving so much. Buy a car that gets 40 miles to the gallon in city. Join a car pool. Use public transportation. Telecommute rather than fly. Of course, these won’t help truckers very much.
It does point out what impacts gasoline prices fastest – a huge drop in demand. You see it every time there is a recession, not that another recession would be a good solution for high gasoline prices.
And, the U.S. isn’t even close to the highest price for gasoline. An item in a recent issue of Peak Oil News described the gas-pump shock for French drivers at one gasoline station in Paris.
The article noted that last December Total’s chief executive officer, Christophe de Margerie, warned French drivers that a liter of gasoline would hit €2. At today’s exchange rate, that would be $2.64. Since there are 3.785 liters in a gallon, that would equate to $9.99 per gallon.
The author of the article pointed out that a gas station in the Rue Saint-Antoine in Paris, not far from the Bastille in the 4th arrondissement, was the first station in France to put up a price of €2.02 – or $10 per gallon. The national average was $8 per gallon, which was a record, according to the Ministry of Sustainable Development.
Given its proximity to the Bastille, perhaps prices could go down given the “off with your head” warning that the landmark represents.
Not to worry, though, the U.S. Congress will protect domestic consumers. As a matter of fact, the U.S. Congress Joint Economic Committee is holding a hearing on gasoline prices in the Northeast on April 26. The location and witnesses for the hearing have yet to be determined.
The hearing is on “Gas Prices in the Northeast: Potential Impact on the American Consumer Due to Loss of Refining Capacity.” The committee will focus on the impact potential closures of petroleum refineries serving the Northeast could have on prices at the pump in the Mid-Atlantic and New England regions.
U.S. Sen. Bob Casey Jr., D-PA, will chair the hearing, which will analyze whether the centralization of refining activities in the Gulf Coast region will affect the price of gasoline, diesel or heating oil or lead to potential shortages of those fuels in the Northeast.
Does this mean that Congress and the administration will finally address the refining problem that has been festering for decades? I haven’t kept up on the East Coast refineries recently. However, a lot of the older refineries in this country were designed for a slate of light crude oil. As the crude mix got heavier, the refineries were having trouble upgrading.
Oh, that’s right, all the refineries are older. No major new refinery has been built in the Lower 48 since 1977 when Marathon opened its 200,000-barrel-per-day (b/d) refinery in Garyville, LA, according to the Energy Information Administration. Several smaller refineries have been built. The most recent is a 3,000-b/d facility in Douglas, WY, in 2008. Of the 11 refineries built since 1977, five of them – the largest ones – are in Alaska.
When oil prices go up, refining margins go down. When refining margins go down, companies begin closing refineries. When refineries close, existing refineries are under greater strain and tend to break down more often. When that happens, gasoline prices go up.
I’m not sure how much more the congressmen need to know, but I’m sure they’ll find something for which to write legislation.
And, Casey has also called on the Commodity Futures Trading Commission (CFTC) to use its authority to limit speculation in the oil market so that investors on Wall Street cannot continue to drive up the price at the pump.
By the time Congress gets through with us, we’ll probably be paying $10 per gallon for gasoline.
Contact the author, Scott Weeden, at firstname.lastname@example.org.
The hearing will be webcast live at www.jec.senate.gov.
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