Oh those Econ 101 deniers
Last week’s column mentioned political energy policy as one of five major issues Americans need to keep their eyes on this election and not be distracted by hundreds of other lesser political issues. When I mentioned drilling to lower gas-pump prices, my e-mail filled up with Econ 101 deniers who said supply and demand does not work in the oil patch because oil is global. That answer is simple, quick and wrong.
Econ 101 deniers say all nations drink from only one bucket (a very large one) so the price of oil in India is exactly the same price as it is in Indiana. It is not. There are many reasons why crude oil price is different by nation, not the least of which is the actual purity of the oil.
Further, we use oil products regionally; therefore regional influences adjust the prices. It is important to count the major ways our government is a factor in the pump price of fuel.
You do not use crude oil to get to work; rather, refined oil products subject to government regulations. The North American regional price for West Texas Intermediate crude as it is turned into gasoline and diesel fuel reacts to three major influences. Each has political components.
First, there is the total available oil supply, because it has the major effect upon price. However, almost as important are the refining issues including capacity and regulation. Finally, there are the distribution issues which can influence the pump price leading to differences between regions of the United States.
Political energy policy
While there are other issues, these as the big three influences on your pump price. They are dynamic with political energy policy. Example: For political reasons the United States has not built new refineries to keep up with increases of the amount of fuel needed and the various required blends of gasoline, of which there are 45 or so. Because of specific blends, some refineries operate at less than 100 percent at times as the blends they are set up to produce reach capacity. The overall pump supply drops because there are not enough refineries and they are busy with such a wide variation of blends to satisfy political entities.
More refining capacity does lower the price of fuel. But it is politically difficult to get new refineries approved. This is felt at the pump as increased price.
A few years ago the Phoenix area had gasoline suddenly shoot above $5 a gallon because the pipeline that carried their very specific blend of fuel from El Paso ruptured and Phoenix city law would not allow any other blend into the city. Stations started raising their prices. Econ 101 says in America we ration everything by price which is dependent on supply and demand. So fuel cost lots of money and people only bought what they absolutely needed.
After a citizen outcry about the lack of fuel and the high prices, the city council reversed the blend specific requirement. The price went back to nearly normal while the pipeline was being repaired since other gasoline blends were trucked in. The pipeline is about 10 times cheaper to move fuel so there was still an increase but it was acceptable.
When government policies push fuel distribution to motor tankers, as opposed to pipelines, we see that this form of distribution is much more expensive than pipelines. The more we as a nation use pipelines, the lower the pump price goes. If 40 years ago we connected the Alaskan Pipeline to the lower 48 states by pipeline, our pump price would have reflected that savings and there would have never been the Exxon Valdez spill. Politics stopped the pipeline to the refineries and Americans paid at the pump,
Each of these three areas is dynamic and can cause price fluctuations. The president and everyone else who are carrying the political water for him are wrong that energy policy will not lower the price of gas at the pump. But do this: Ask the poor slub standing at the pump watching most of his/her discretionary funds being sucked out of their wallet; ask that person if there will be a change in their voting this fall.
Swickard is co-host of the radio talk show News New Mexico, which airs from 6 to 9 a.m. Monday through Friday on a number of New Mexico radio stations and through streaming. His e-mail address is firstname.lastname@example.org.
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