Overregulation driving price of gas higher

Freedom Newspapers

If only automobiles could run on hot air from politicians bloviating about high gasoline prices. Then we might have something.

President Bush is the latest to jump on a bandwagon overcrowded with the likes of Chuck Schumer, Nancy Pelosi, Bill Frist, Dennis Hastert, Arlen Specter, Dianne Feinstein and Arnold Schwarzenegger, announcing a probe into possible “price gouging” by oil companies and ordering a temporary halt to deposits in the Strategic Petroleum Reserve.

Ah, the oil companies, favored punching bag of every politician who knows he can’t do anything concrete to reduce gasoline prices — except, perhaps, to undo previous actions — and looking for a cheap headline.

On sheer volume, oil companies make high profits when oil prices are high, so it’s easy to attack them. And they make some questionable
management decisions, such as the Exxon board did when it showered outgoing chairman Lee Raymond with one of the most generous retirement packages in history, worth nearly $400 million. They were thanking him for making ExxonMobil the largest oil company in the world.

Oil companies would no doubt love to dictate and manipulate the prices of oil and gasoline if they could. But none has the market power to do so. The current price of oil, more than $70 a barrel, up about 20 percent since January, is the result of high demand due to a number of factors. These include conversion to ethanol from MTBE, as well as economic growth, mainly in the United States and China, along with political uncertainty in oil-producing countries like Venezuela, Iraq and Iran. Oil companies benefit from these high prices, but prices are determined by supply and demand.

A study by Cato Institute scholars Jerry Taylor and Peter Van Doren compared profit margins in the oil and gas industry to other industry sectors. The oil industry has been slightly less profitable than the rest of the economy since 1970, though it has had fat and lean years in that time.

If Congress were serious about reducing gasoline prices, it would start by repealing the energy bill it passed last year, especially the ethanol mandate. Ethanol is difficult to store and ship outside the Midwest. Corn farmers cannot yet supply the amounts mandated. So the price has risen from $1.45 a gallon to $2.77. That and other environmental regulations increase refining costs and drive up gasoline prices.
Environmental regulations also require 17 “boutique” fuels for different areas of the country. Simplifying or suspending these rules would make it easier to move fuel around to handle regional shortages.

People and companies are already responding to the price signals with voluntary conservation or switching to higher mileage cars or investigating promising new technology or fuels. Ultimately, the biggest progress toward new energy sources and usage will come from these marketplace decisions.

Political interventions in the marketplace almost always increase costs and prices rather than reduce them. Any politician serious about alleviating the pressure caused by high gas prices would do well to start repealing laws and regulations rather than adding new ones.