The Price of Gas

As I've said before, I am not surprised that gas hit $4.00 a gallon.



What has surprised me (though perhaps it shouldn't) is that it happened so early in the year. Its $3.29 right now for the high test ($2.99 for low grade at the McLean Exxon). I had predicted it would top $4.00 by August, but perhaps I should readjust that thinking now and say $5.00 a gallon gas is a possibility. Not sure if I am ready to go out on that limb yet, but I'll check some figures tomorrow and re-evaluate.

The bigger questions though are 1) who is to blame and 2) what can we do about it.

Well, they are going to try and spin it as a Bush problem - and politically it is. He really dropped the ball on this, and if he grew a set of nuts and wanted to take on the environmentalists he could remedy the problem real quick. The problem is that as we have seen with Lee Raymond and my Exxon stock, price increases are marginally good for oil guys.

But ultimately, it comes down to the Democrats and their continued toeing of the environmental doomsday line. Market forces and the Clean Air Act are the real underlying problems here.

The Clean Air Act requires a mixture of boutique fuels, all of which introduce artificial restrictions on the gasoline market - as does the continued litigation over (and now bans on the use of) MTBE which is boosting the ethanol market - at a high price to consumers. Back in the early days of the Bush Administration I used to joke that he should grant California their wish and force them to use ethanol. Looks like its happened anyway.

The Clean Air Act is also - along with a general NIMBY mentality - one of the main obstacles to the construction of new refineries, further impeding the growth of gas supplies.

This, of course, is augmented by increasing worldwide demand, but seriously the situation in Niger and Venezuela and Iran along with increased Chinese demand can all be compensated with fairly simply domestic policy shifts.

Of course, the Clean Air Act doesn't allow you to consider economics when looking at these issues - but at what point do people loose so much money that they no longer go to the doctor or are able to afford air conditioning, the bus to work, a healthy diet (milk for their kids), etc.