Pump Politics: Had Enough? - Supply and Demand Rears Its Ugly Head
One hurricane, devastating though it was, has brought the petroleum industry to its knees. Now is a good time to ask why. How could such a thing come to pass?
I should say by way of preface that I am no expert in these matters. I am merely a reasonably informed citizen. I understand something of economic reality and possess a modicum of ability to apply that knowledge. I also grew up in a family involved in the oil business.
Let’s start with the fact that we have been living on the edge from the supply side for years. The supply in this case is refined product, gasoline and other distallites. We do not have the refining capacity to meet our needs. We import a significant portion of the finished product. What refining capacity we have has a major portion located on or near the Gulf of Mexico in such places as Houston and New Orleans. The storm on Monday took out the refining capacity of New Orleans and environs. All this refining capacity has been operating at or near capacity for years. There was no redundancy. We have seen price spikes for years when so much as one refinery goes down for one reason or another. No new refineries have been built since the 1970s.
So, with the loss of the capacity in New Orleans there is a shortage of supply. Either demand has to drop voluntarily or be reduced by increased prices. There is no sign of the former occurring, so the immutable laws of supply and demand are taking hold, ergo $6/gallon gas in Atlanta. (That would sure discourage me!) Even if the $6/gallon figure is panic/ greed driven, there sure is to be a level found higher than where we are, some experts predicting $4/gallon.
What sort of answers are we getting from some in Washington?
From the usual suspects we are hearing call for price controls. How on earth does that improve supply? If price stays the same, the product continues to be bought at the same level, i.e. 100% of demand. There is not enough product to meet that demand. What will happen at that point? The supply will be exhausted. That will bring on rationing, panic buying, a return to the gas lines of the 1970s and economic disruption which is difficult to assess at this point.
We have a supply crisis and have had for quite some time. We have been living on the edge of this crisis. One hurricane forced the issue.
Congress can bleat and legislate all it likes. They can try to repeal the law of supply and demand all they like. That makes no more sense than trying to repeal the third law of thermo-dynamics.
If we do not face the facts, and face them soon, the situation is going to get worse, a lot worse.
– by contributing blogger, MontereyJohn
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September 3rd, 2005 at 2:42 pm
España debe enviar a Usa barriles de petroleo de su reserva estrategica. Usa salvo a Europa de Hitler.Hay que ser agradecidos.
September 3rd, 2005 at 7:39 pm
The only way All americans will Demand that the arctic National wildlife Refuge be opened for oil drilling is when the price of gas goes to $5.00 a gallon. Forget Alternative Energy sources: it is a leftist democratic propaganda lie-They want the general public to pay high prices. The usual cries of big oil price gouging is another leftist device to divert amd distort the real truth about energy costs. It is a matter of worldwide supply and demand economics and energy exploration/refining capacity. Unfortunately the American People are easily duped by the propagnda spin put out by leftist media sources blaming big-oil and promoting unrealistic impractical alternative energy sources.