Tuesday, May 18, 2004

Dead Horse: "Record" gas prices continue to dominate the economic news. Several key Dems are calling for 60 million barrels from the strategic petroleum reserve be dumped on the market. There are several problems with this. First, as we discussed the other day, and which ANWR opponents would be so keen to tell us, 60 million barrels is less than three days' supply. Second, part of the reason for the rising prices is rising demand outpacing refining capacity. Dumping a bunch of unrefined crude on the market does nothing to alleviate the refinery bottleneck. (Here's a good overview of how refinery economics affect gas prices.) Third, as has been mentioned everywhere except the major media stories on gas prices, the cost of a gallon of gas is still historically low.

It's worth noting that John Kerry is not among the Democrats calling for tapping the SPR. No doubt he's delighted by the price spikes, as his needling of Bush reflects:

"Yesterday, gas prices soared to more than $2 a gallon, but this administration still has not done anything to help" Kerry said. "Their inaction is costing working Americans their jobs, their savings and the opportunity to get ahead."
I'll take an inactive administration any day, of course. Once a president gets it in his head that its his job to fix the price of a commodity, expect the economy to sputter. Nixon's wage-price controls and the pornographic farm policy we've pursued since FDR do a lot to prove this. (More to the point, OPEC already makes its living by monkeying with the price of petroleum. With them price fixing on one end, and a Kerry administration price fixing on the other, probability is about 1.0 that you'll get screwed in between.) That aside, what would Kerry do?
Kerry promised to provide relief by suspending filling the SPR, working more effectively with oil-producing nations and enacting simpler and cleaner national fuel strategies.
I'm not sure what any of that means. Sure, you can stop topping up the SPR, but something inside me says Bush is doing this for a reason. As for working with oil-producing nations, isn't Bush supposed to be in bed with the Saudis via Kennebunkport regular Prince Bandar? How do you work closer with OPEC than that? Does Kerry mean he'll grovel better than Bush? And how about Kerry's wonderfully non-specific "simpler and cleaner" strategies? Let's start with cleaner: Will that mean retooling refineries? Expect another price jump. Will that mean California-style formulations nationwide? Another 20 cents, minimum -- and that's before a new gas tax is added. How about simpler? Don't ask me why, but I have the feeling that he doesn't mean allowing a free market to streamline things. No, from a Democrat (and, more often than not these days, a Republican) "making things simpler" means Uncle Whiskers telling you what to do.

Let's stop having a national panic attack over this.

More: Alan Reynolds at Cato endorses tapping the reserves, on the grounds that the market just needs a "shock":

With nearly 700 million barrels of oil in its war chest, the United States is quite capable of giving OPEC a bloody nose. Far from being a well-disciplined cartel, most OPEC producers would scramble to "make hay while the sun shines" by maximizing production if they feared the United States might flood the market, even for short while.

The U.S. government should simply let it be known that significant yet undisclosed sales of petroleum reserves are by no means out of the question. That would scare OPEC a little, and it would scare oil traders a lot.

He's cavalier about justifying this as laissez-faire policy, saying that while the price of oil should be market determined,
". . . the OPEC oil cartel is one of those "market forces." And so is the U.S. Strategic Petroleum Reserve (SPR)."
That sounds a little like justifying parity pricing of crops by saying, "Well, the U.S. government is a market force": technically true, but not desirable.

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