Politics and Policy In the News: Bush Diverting Oil from Reserve to Gas Pumps 1. Multiple congressmen and the President are asking for an investigation into “price gauging” at the pump. It’s the typical political response, from both parties, to an issue which can be very volatile in an election year. Yet both the Congress and the President both know that there is no law against “price gauging". They also know that if they want to know what happened, they only need to ask Cheney and the oil executives he met with to create a national energy strategy. But since Congress won’t put those same executives under oath during hearings, then no investigation will bear any fruit. It’s just an attempt to make it look like they are doing something, when they are doing nothing. They just want to point to something they did (i.e., call for an investigation) to get them through the November elections, after which the subject will disappear. The price per gallon increase at the pump doesn’t match the increase in the price per barrel on the wholesale market. Industry analysts say that the current increase in price per barrel since December should translate into a 15 cents per gallon price at the pump. Instead, we are seeing about a $1.00 price per gallon increase at the pump. But don’t expect any revelations on that fact, at least not from Congress of the White House. 2. The President is saying that he will suspend contributions of oil into the U.S. Strategic Reserve, in an effort to help lower the cost of gasoline. Now this is contrary to the policy of the U.S. Strategic Reserve, because it is in effect “tapping” oil earmarked for the reserve in order to manipulate the market price, potentially for political purposes. The strategic reserve is only supposed to be used for “strategic” reasons, such as another Arab oil embargo, etc. When Clinton did the same thing late in his Presidency, the Republicans screamed bloody murder. But aside from that, it seems like a common-sense thing to do, right? Except that: (a) There is so little oil involved it won’t make an impact on prices. “The suspension of oil purchases for the federal emergency oil reserve is likely to have only modest impact since relative little extra oil will be involved.” (MSNBC 4/24/06) (b) The oil industry is saying that one of the problems is that they are at maximum refinery capacity right now. So adding new oil supplies (such as from ANWR, offshore drilling, or from the strategic reserve) won’t make a difference - it will just be more oil waiting to be refined (or re-sold to other countries for a profit). (c) The oil industry as been claiming that one of the problems with refining capacity is the semi-annual transition between winter and summer blends. Now I have addressed this before: refineries already make multiple grades of gas (and diesel, heating oil, kerosene, jet fuel, etc.) from crude oil, with a variety of blends for each major brand of gasoline. That’s why Chevron or Shell can advertise that their gasoline is worth an extra 20 cents per gallon at the pump. The transition from winter to summer blends can take place in a very short time period - overnight, or within a few of days, at most. The conversions should be just about completed. Yet the President is suspending regulations after the fact? (d) Finally, Bush made the following comment: “But the president said that “by deferring deposits until the fall, we’ll leave a little more oil on the market. Every little bit helps.” But isn’t the fall when prices rise again, as refineries convert from gasoline production to fuel oil production? After being in the “oil business” all those years, is Bush really so ignorant of how the oil market works that he wouldn’t realize that there will be just as much (or more) pressure on oil prices in the fall as there are now? Or does he realize this, and just hope that the fall oil price increase can be delayed until after the November elections? Posted by RHP6033        Copyright 2006-2007 - Brookridge Associates Inc. All rights reserved.