Congress — Step Away From That Pump!

By May 28, 2007Energy

From the Wall Street Journal, which notes that Congress has requested some 30 studies into alleged market manipulation by oil companies over the years, with the findings never justifying charges of “price gouging.”

If Congress wants to locate genuine gas price villains, it should look in the mirror. Domestic refining capacity is stretched in part because environmental laws discourage the building of new refineries. Meanwhile, new mandates for ethanol and other “boutique” gasoline blends make it harder for the industry to meet refining shortfalls. The Lundberg Survey estimates that the ethanol mandate alone adds 10 cents to each gallon, and that 36 refinery snafus this year have cut U.S. gas supplies by about 8%. Refiners are also currently switching to mandated summer gasoline blends–another contributor to the current price spike….

If Congress wants really high prices, it should keep this up. After Hurricane Katrina, several states including Virginia strictly enforced price gouging laws, and many service stations simply ran out of gas altogether. Gas wasn’t available at any price. Last year’s FTC report pointedly advised Congress that “federal gasoline price gouging laws that have the effect of controlling prices likely will do consumers more harm than good.” It added that, “Competitive market forces should be allowed to determine the price of gasoline drivers pay at the pump.” Such a lesson in supply and demand seems beyond Congressional understanding.

UPDATE 6:15 p.m.: Cripes. Now governors are getting into the mock outrage business.

Gov. M. Jodi Rell, taking a page from “The Little Engine That Could,” Monday led a band of 22 governors in a battery-ram attack on the halls of Congress over stratospheric gas prices.

“We are demanding answers on the gas price spikes that are hurting the consumers and the economies of our states,” Rell said in a letter delivered to congressional leaders on Capitol Hill and co-signed by the governors. It was Rell’s third appeal that Congress probe gas prices.

Demanding answers about price spikes? OK, here are the answers. There’s the FTC report from 2006: “Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases.” And here’s congressional testimony from the API’s chief economist, John Felmy, explaining current market forces determining fuel prices, and API’s Red Caveny’s testimony on oil company mergers and refinery capacity. And here’s some useful background.

There, all answered.

Join the discussion One Comment

  • Great points indeed. It is a fact that the law of unintended consequences shows its ugly head again. When anti-capitalist sentiments rule over free-markets, everyone loses.