SEARCH BLOG: OIL
President Bush wants Congress to get off its collective behind and allow oil exploration and drilling in our offshore waters. [It's all over the news, so you don't need a link] That's a good first step. It's not the entire answer with regard to oil and gasoline supplies.
The purpose of drilling for more oil is to ensure that global supply meets or slightly exceeds global demand. If we pull oil out of U.S. territory and ship it to China while production elsewhere goes down, nothing is accomplished for consumers in the U.S. The price of oil is not set in Texas.
The issue goes well beyond the raw supply numbers [which tend to be somewhat opaque and variable depending on the source of the data]. I suspect that there is more than enough supply and too much uncertainty driving prices. Nevertheless, when you look at the cost of gasoline, the real problem lies beyond the cost of a barrel of oil.
From the Boston Globe:
S.D. county approves rezoning for new oil refinerySee, if you can increase the number of approvals exponentially, nothing will ever get done.
Yes, the voters approved, but:
Hyperion's next big hurdle is a lengthy air quality permit application being reviewed by the South Dakota Department of Environment and Natural Resources.
"It's going to be a long road before anything's done on it," project opponent Jason Quam said of the refinery.
But let's assume that the refinery actually gets built. That's the second step. Now the U.S. EPA and individual states have to approve all of the various blends that the refinery can and must produce. There's the Christmas holly blend, and the Valentine's chocolate blend, and the Easter jelly bean blend, and the 4th of July .... How does that work for you? Here's how it works for the U.S.:
AbstractLoad gun; shoot foot. Higher fuel prices as easy as 1,2,3:
The US Clean Air Act allows individual states to implement their own clean fuel programs to address local or regional air quality concerns. These regulations have led to a proliferation of fuel blends known as “boutique fuels.” For each of the three grades of gasoline, more than 15 types of boutique fuels are currently in use, leading to about 45 different fuel blends in use nationally. These fuels are costly to produce, but they also segment the market and increase the market power of refiners. Using measures that differentiate gasoline regulation in a given state from those in neighboring states, we find that both cost and market segmentation significantly affect wholesale gasoline prices. In particular, the greater the regulatory “distance” between a state and its neighboring states, the higher the wholesale price in that state. Simulations suggest that for some states regulating a single boutique fuel nationally may lead to a counter-intuitive outcome: gasoline prices may decline, even though a larger share of their market will be under regulation.
- Restrict oil supply
- Delay needed refineries
- Fragment production at refineries into less economical volumes