Gas price chatter obscures the real problem

Suncors Oil Refinery in Commerce City, Colorado. (Photo by Hyoung Chang/MediaNews Group/Denver Post/Getty Images.)

When President Joe Biden Started brag about falling gasoline prices, he gave a hostage to the lot. Now gas prices are going up and things are looking bleak for the hostage.

After a 99-day drop, gasoline prices rose again on Wednesday. Don’t read too much into that. Futures markets suggest that the short-term trend for gasoline prices is likely to be downward, but the commodity is volatile. The only people who bet on it are fools and professional energy traders – the two categories are not mutually exclusive, but President Biden doesn’t have many energy traders on the political team.

“Our economy had zero percent inflation — zero percent in the month of July,” Biden said boasted just a few weeks ago. ‘This is what that means. While the price of some things rose last month, the price of other things fell by the same amount. The result: zero inflation last month.”

In reality, the prices of most of what Americans buy rose, and the reduction in inflation was almost entirely due to lower energy prices – “core” inflation, a measure that excludes the sometimes wild swings of food and energy prices, continued at a steady pace. penalty of 8.5 percent.

Even if it hadn’t been for that, Biden’s argument would have been rather weak: Real wages — that is, inflation-adjusted wages — have fallen sharply during his presidency, continuing the clear downward trend that began. before he was elected, in the second quarter of 2020. This is entirely due to inflation: ‘nominal’ wages – the number on the salary – have risen slightly, but prices have risen faster. The parlor game in Washington to correlate presidential inauguration dates or bill signing with changes in major economic trends is superstitious folly — complex, modern economies don’t work that way — but no one held a gun to the president’s head and told him to pretending that short-term changes in inflation are a judgment on him and his policies. If he insists on playing that game, then the outcome that matters most is the wages of the Americans relative to prices— and that arrow is pointing in the wrong direction. Most Americans think: CPIA is a new spin-off from a crime drama franchise on CBSbut they know how much salary they have left when the bills are paid and the groceries are bought.

That’s a problem for Biden. He’s never figured out how to talk about gas prices, partly because of internal frictions between Democratic factions — Biden’s lunch bucket pretensions clash with the environmental priorities of influential Democrats who hope to eventually stop gas consumption altogether — and partly because he’s the intellectually lazy figurehead. is of an intellectually lazy government.

The last time gasoline prices rose sharply, Biden resorted to cheap demagoguery and denounced gasoline retailers as price gouges. The sign outside may say ‘Exxon’ or ‘Texaco’, but oil companies haven’t owned a significant number of gas stations for years, and most gas stores are family businesses with one location. Usually they don’t make a lot of money selling gasoline because their margins are made inside the store that sells soft drinks, cigarettes, lottery tickets and more. And they don’t necessarily make more money when prices are higher. They buy as much gasoline as they sell, and retail gasoline prices are determined not least by wholesale gasoline prices, which in turn react to global crude oil markets. There must be an economist somewhere in the White House who could explain to the President that the… highest price and the profit maximization price are rarely the the same price.

If prices soar this winter, expect a return to that kind of ugly politics: smoothing over insufferably when the news is good and blaming ignorantly when the news is bad. Biden’s many striking similarities to his predecessor are a reminder that populism is populism, regardless of the package label.

There probably isn’t much that the Biden administration can do, or that any government could do, in the short term on gasoline prices. But there is much that policymakers could do to create a more reliable and efficient energy industry in the United States. And while everyone is talking about the price today, should talk about reliability and safety.

Global energy markets are efficient and frictionless in terms of trade effects going, and that’s important. However, actually delivering fuel to customers is subject to significant physical limitations. We could give our European friends promissory notes for fuel to keep them warm this winter. But, as Europe is beginning to realize, there are only so many pipelines with so much capacity, limited facilities for unloading and regasification of liquefied natural gas, and other limitations in practice. We’ve seen that, usually in a less dramatic way, in the United States as well: When Hurricane Harvey threw all that rain over Houston in 2017 and pointed south, the resulting shutdown of several refineries and pipelines not only pushed up gasoline prices, but forced many retailers to shut down their pumps for lack of product. Energy lawyers and oil and gas financiers in Dallas were safe from the storm, but they were unable to refuel their Range Rovers. The 2021 ransomware attack on the colonial pipeline system resulted in a formal state of emergency in 17 states and the District of Columbia. Vladimir Putin’s energy war against the European Union seems to have at least somewhat awakened Brussels and Berlin, but Washington seems almost completely blind to similarly serious US vulnerabilities.

The complexity of producing, refining and distributing petroleum fuels leads to some counterintuitive results. Mexico is a major oil producer, but relies heavily on gasoline imported from the United States. (About half of it of US refinery exports go to Latin America, with Mexico being by far the largest destination.) Saudi Arabia imports fuel oil from Russia. Iran imports diesel and, until just a few years ago, most of its gasoline. The United States, the world’s largest petroleum producer and a major petroleum exporter, imports… oil-. a lot of it.

Oil is not homogeneous. Many US refineries are optimized for the type of oil we have been importing for years rather than the type of oil produced here. Sometimes oil imported from Canada or Mexico is simply more convenient for US refineries. We also import refined petroleum products ranging from home heating oil to gasoline and diesel. We even occasionally saw a boatload of LNG from the Russian Arctic come to New Englandbecause we don’t have enough pipeline capacity to pump Pennsylvania gas to Massachusetts when demand peaks.

If U.S. refineries and wholesalers were cut off from those imports, it wouldn’t be cheap or easy—or quick—to replace them. That’s not a reason for energy self-sufficiency, but it is for encouraging the development of a more robust, diversified and secure domestic energy industry, especially when it comes to pipelines and other modes of distribution — that “infrastructure” that presidents are always talking about.

That’s the conversation Americans should to have. Instead, we’ll probably spend the winter talking about whether a 60-cent swing in the price of a high-octane car represents a catastrophic failure of the national priest-king to propitiate the economic god.

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