April 05, 2005

Should Oil Wheeling be Illegal?

Imagine three people in a line, A, B, and C. A and B both have a commodity that C wants. A has three units and needs to use one, B has one unit and needs to use two and C has zero units and needs one. Let's further say that it's cheaper for B to sell C his unit and buy two from A than for C to buy from A and B to buy from A. Should B be allowed to make the more efficient deals?

Illegalizing that sort of trade seems to be what Sen Ron Wyden is after. The US can sell Alaskan oil to Japan for less money than Japan can get it from the Gulf. The US then increases imports from Venezuela to make up the difference, saving on net shipping costs. Japan saves money, the US makes a small profit on the deal, and Venezuela sells its crude closer to home instead of shipping to further off customers.

No doubt, if we were to get into some sort of national crisis, we'd keep our oil home and the Japanese would have to pay the Gulf States' "Asia premium" of up to three dollars on each barrel. So who should get the extra money? Gulf producers or should US oil companies split the money between them and worldwide consumers?

Unfortunately it takes 2-3 paragraphs to explain why such trades are a good idea and only one sentence or two for demagogues to argue that they're against the national interest, crying economic treason.

Posted by TMLutas at April 5, 2005 10:10 PM