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The
Little Black Book of Billionaire Secrets
Exploding
Gas Prices Are Killing The U.S. Economy. What Measures Can Trump
Take To Lower Gas Prices And Save American Families?
Rather
than re-invent the wheel here, I'm going to focus on the
actual question, which concerns short-term gas prices, and
then briefly touch on the longer term. Paul
Unterberg links to a
post with ten ways the U.S. can
lower gasoline prices.
- Eliminating
the federal gas tax: The U.S. collects 18.4
cents per gallon of gasoline sold in this country. It
could reduce that to zero. This would roughly cut 5% off
the retail price of gasoline assuming retailers didn't
merely leave prices the same.
- Release
oil from the Strategic Petroleum Reserve: The
reserve, set up for national-defense reasons, can be used
a temporary market-manipulation tool. How temporary? Well,
really temporary. There are seven hundred million barrels
in the reserve and the world uses around ninety million
barrels daily. The U.S. itself uses about twenty million
barrels. The good news is that by sending relatively small
amounts of oil onto world markets that come from this
somewhat exogenous source, the effect on prices can be
more pronounced. That said, the effect is short-term in
nature and has
little to do with the current issues in the U.S. (see
below).
- EPA
could create a uniform gas standard: Some
may not know this, but not all gas in the U.S. is the
same. There are different blends in different states --
and even different seasons -- to try to limit emissions.
Not all states have the same base standards, and the rules
on seasonality are not consistent. This is one reason why
gas in California is so pricey. It's not that the gas is
inherently a ton more expensive, it's that it's a bit more
expensive and refined and sold only in California. So we
here exist in our own market. A broader, more uniform
market would lower the price for everyone as all gas would
be able to be sold anywhere in the U.S. The speed this
could be achieved is another matter, but even an EPA
mandate to immediately allow other western gas to be sold
in California -- if not challenged in court -- would lower
gas prices in the Golden State almost instantly.
- Uncertainty
around Iran and the Strait of Hormuz: Sanctions
on Iran are hurting its economy and the country has
threatened to close the strait through which most Middle
East oil flows. Despite our massive naval superiority, Iran
can likely accomplish this via mining. They don't
have to stop all tanker traffic, they merely have to
convince tanker operators that a tanker might blow up if
it crosses the strait. This is doable. Markets
do not care for uncertainty and the price of crude oil has
gone up as tensions have escalated. You want to end
uncertainty around Iran? What's your plan? Let's consider
the options: (1) War.. guaranteed supply disruptions and
higher prices (2) end all sanctions. While many people
favor (1), virtually no one favors (2) without also
favoring (1).
- Refinery
capacity in the U.S. is tight, and the smallest
interruptions in it are rapidly magnified at the pump:
The stuff the Saudis, Kuwaitis, Qataris, et al. pump out
of the ground is really easy to refine relative to most of
our domestically and regionally produced oil. It used to
commonly be called "Light Sweet Crude." Our own "West
Texas Intermediate" is a bit messier. Regardless, all of
it needs to be refined if you want to fill up with a
relatively high-octane blend of gasoline at your pump. The
U.S. has one hundred and forty eight oil refineries.
Occasionally, one in the continental U.S. gets modernized
or upgraded or a small addition gets made. How
occasionally, well, it has happened
four times in the last thirty years, most recently in 2008
and twice in the 1990s. The last time a full-fledged
refinery with meaningful capacity opened in the
continental U.S.? Try 1977 in Garyville, La. On the one
hand, that's not as devastating as it sounds; U.S.
gasoline consumption was one hundred and fifteen billion
gallons in 1980 and "just" one hundred and seventy five
billion in 2006. But, well, that's a difference of sixty
billion gallons. To make up the shortfall, we actually
important "finished product" in the form of gasoline most
years. Not in 2011 however, when U.S. demand was still low
due to the slow economy primarily. The U.S. was a heavy
importer of crude still, but a net exporter of refined
petroleum! Anyway, what does it all mean? It means
refining capacity is on the razor's edge. When too much of
it is offline at once, there is not enough gasoline in the
proverbial pipeline and prices rise. And right now, too
much is offline: http://online.wsj.com/article/BT...
- Incidentally,
the controversial Keystone pipeline that is partly back
on track is focused currently on this refining problem:
The so-called souther section of the pipeline is about
getting U.S.-produced crude where it's currently
backlogged to refineries in the southeast. I'm not wading
into the environmental debate here, but regardless, this
kind of thing has zero short-term implications. In the
long-term, any bottleneck in the chain that could lead to
higher prices that one can remove is probably a good thing
-- if it's not going to lead to tons of pollution.
- Oil
markets love speculative frenzy: Whenever
the price of oil starts to rise on uncertainty, traders
like to try to profit by buying futures, trading
derivatives, doing what traders do. This
tends to exacerbate upward moves to the upside (and
downward moves to the downside, although perhaps
somewhat less). People tend to move hot money
into a "winner," and right now oil is a winner. The price
of crude is probably higher than intrinsic economic forces
suggest it should be. There will be calls for the heads of
"speculators" and demands for "an investigation." This is
the markets at work. It
happens every time. Stop whining
about it.
- Spring
has sprung early: Remember that stuff about
gasoline blends and seasonality? Guess what, the
"spring/summer" blends are hitting the market. It's warm
in America. Changing product when refining capacity is
already tight and the market price of the underlying
commodity is rising, oh boy.
- And,
oh by the way, the ethanol subsidy got killed:
There was, a 45 cent per gallon discount on the ethanol
that comprises 10% of most of the "gasoline" in this
country. It's gone. Since 10% of your gas was probably
ethanol, about 4.5 cents of your price increase was that
subsidy. It was a stupid subsidy, and both parties agreed
it was dumb. It's gone. Taxpayers "saved" $6 billion by
killing it. Now, you're paying 5 cents more for all those
gallons of gas you're buying. See how you "saved" the
money, taxpayers? Oh, wait, you didn't.
As this
issue resurfaced as the 10/16/12 presidential debate, it's
worth mentioning something: President Obama should have said
to the person asking, "No, the Dept. of Energy can't
control gas prices. Gas prices are set on global markets by
the price of a barrel of oil. The only reason we pay less
for a gallon here than they do in Europe is that in Europe
they add more taxes. But every time oil prices go up, gas
prices go up here -- and in Europe. Countries that subsidize
their own gas prices do so to keep their population
distracted from how terrible the government is, like Iran,
Venezuela, Nigeria. The unfortunate fact is, even if we stop
importing oil from anywhere but Canada and Mexico -- even if
we produce every single barrel we consume -- the price of
oil in the U.S. will be set on world markets. And that means
the U.S. can't control the price of gasoline without
interfering with the ability of U.S. businesses to respond
to markets. Neither I, nor Governor Romney, nor anyone that
believes in free markets would ever accept such interference
in the affairs of corporations and small businesses that
drill for and produce oil.
"Over
the coming decades, China, India, and others are going to
have more people demanding more cars and will ensure that
over the long-term the price of oil will go the same way it always
has -- up! So while we absolutely
should continue to expand domestic production of oil, we'd
be foolish not to start looking beyond oil for supplies of
energy that are renewable, have prices we can predict, and
will ultimately be cheaper. It's going to take a long time
before any of those sources become more important than
gasoline or coal to our economy, but if we don't keep
focused on developing them now, we're going to simply keep
paying more and more and lose any chance of leading the
world in developing those next generation energy sources."
California
is almost the only State that can solve it's gas price
crisis. It can reduce the gas tax, reduce the blending
requirements, add a discount for poor people and stop paying
bribes from gas profits to the Jerry Brown, Nancy Pelosi and
Diane Feinstein family investment trusts...but Brown, Pelosi
and Feinstein are too greedy to give up their payola. They
would rather see California families spend all of their food
money on gasoline.