May 04, 2004

US Oil Tragedy

I've been looking at a Stratfor front page item for a few days now, trying to figure out whether to write about it. Since it's likely going to scroll off, I'll just quote below:

Greenspan: Energy Prices Going Up and Staying Up
Apr 30, 2004
U.S. Federal Reserve Chairman Alan Greenspan warned this week that the global economy has entered an era of permanently higher crude oil and natural gas prices. This will force U.S. producers and consumers to rethink how they use energy. In the near term, it implies higher costs that would impact business investments and consumer spending. In the longer term, the U.S. economy will benefit disproportionately.

Normal economics generally ensure there is no such thing as permanently higher prices and Greenspan is no Malthusian wacko or socialist. He's an objectivist. So what's going on here? A little news googling and a Washington Times piece jumps out with the answer:

Kyle McSlarrow, deputy U.S. energy secretary, took issue with the Saudi's statement and said high crude prices also are to blame for high gasoline prices. He noted that oil prices have been well above OPEC's target range of $22 to $28 a barrel all year.
    "Refineries may be an element of it, fuel specifications may be an element," he told the conference. "But we think the overwhelming factor here is crude oil prices," which are so high that U.S. refiners have avoided adding to their stockpiles.
    But with U.S. refineries operating at 90 percent of capacity, Mr. McSlarrow admitted more refineries are needed.
    "We, of course, welcome investment in the United States," he told Mr. al-Naimi. "If you can figure out the regulatory regime and get something permitted, good luck, and let us know how you did."

The US has not had a new refinery permitted since the Ford administration. No doubt this is good news for those who hate energy use but for the other 95% of the country it's horrible. It's also political and explains the original Greenspan statement. It isn't that the law of supply and demand are being suspended when it comes to oil. It's that we've created a balkanized, creaky, refinery regime that via government fiat ensures that economics becomes less and less dominant a factor in gasoline price setting.

For the rich, it's a nuisance. For the middle class, it's a burden. For the poor, it's a tragedy. Perhaps both campaigns can get off the Vietnam nostalgia kick they're on and address the problem?

Posted by TMLutas at May 4, 2004 08:39 AM