The talk about the price of gas obscures the real problem

Suncors Oil Refinery in Commerce City, Colorado. (Photo by Hyoung Chang / MediaNews Group / Denver Post / Getty Images.)

When President Joe Biden started brag about the drop in gasoline prices, he was giving a hostage to fate. Now gasoline prices are going up and things look bleak for the hostage.

After dropping for 99 days, gasoline prices rose slightly on Wednesday. Don’t read too much into this. Futures markets suggest that the short-term trend in gasoline prices is likely to be down, but the commodity is volatile. The only people who bet on it are fools and professional energy traders – the two categories are not mutually exclusive, but President Biden doesn’t have many energy traders on the political team.

“Our economy had zero percent inflation in July, zero percent,” Biden boasted just a few weeks ago. “Here’s what it means. While the price of some things went up last month, the price of other things went down by the same amount. The result, zero inflation last month. “

In fact, the prices of most of what Americans buy have risen, and the reduction in inflation has been almost entirely the result of lower energy prices: core inflation, a measure that excludes fluctuations at wild times in food and energy prices continued to persist at a punishing 8.5 percent.

Even if this were not the case, Biden’s argument would have been rather weak: Real wages, i.e. inflation-adjusted wages, fell sharply during his presidency, continuing the marked downward trend that began. before being elected, in the second quarter of 2020. This is entirely due to inflation: “nominal” wages – the number on the paycheck – have risen slightly, but prices have risen faster. Washington’s party game of trying to correlate presidential inauguration dates or the signing of bills with changes in major economic trends is superstitious folly – complex, modern economies don’t work that way – but no one has bet. a gun to the president’s head and told him he had to pretend that short-term changes in inflation are a judgment on him and his policies. If he is going to insist on playing that game, the result that matters most is the salary of the Americans compared to prices– and that arrow points in the wrong direction. Most Americans think CPI is a new spin-off of a drama franchise on CBSbut they know how much paycheck he has left after paying the bills and buying the groceries.

This is a problem for Biden. He never figured out how to talk about gasoline prices, partly due to internal friction between Democratic factions – the claims of Biden’s blue-collar workers clash with the environmental priorities of influential Democrats who hope to eventually stop consumption altogether. of gasoline – and partly because he is the intellectually lazy figurehead of an intellectually lazy administration.

The last time gasoline prices shot up, Biden resorted to cheap demagoguery, chastising gasoline dealers as price forgers. The sign on the outside may say “Exxon” or “Texaco”, but the oil companies haven’t owned a significant number of gas stations in years and most gasoline dealers are family-run businesses with a single location. Typically, they don’t earn much from gasoline sales, as their margins are realized inside the shop that sells sodas, cigarettes, lottery tickets and more. And they don’t necessarily make more money when prices are higher. They buy as much gasoline as they sell, and retail gasoline prices are driven largely by wholesale gasoline prices, which in turn respond to global crude oil markets. There must be an economist wandering around the White House somewhere who could explain to the president that the higher price and the profit maximization the price is rarely the same price.

If prices rise this winter, expect a return to that kind of bad politics: strut unbearable when the news is good and blame ignorant when the news is bad. Biden’s many marked similarities to his predecessor remind us that populism is populism, regardless of the label on the package.

There is probably not much the Biden administration can do, or any administration could do, about gasoline prices in the short term. But there is a lot that policymakers could do to create a more reliable and efficient energy industry in the United States. And while everyone is talking about price today, we should let’s talk about reliability and safety.

The world energy markets are efficient and frictionless when it comes to trading titles goes, and this is important. However, the business of actually delivering fuel to customers operates under significant physical constraints. We could give bills to our European friends as fuel to keep them warm this winter. But, as Europe is starting to appreciate, there are just so many pipelines with so much capacity, limited facilities for the unloading and regasification of liquefied natural gas, and other real-world limitations. We’ve seen this, usually less dramatically, in the United States as well: when Hurricane Harvey dumped all that rain on Houston and headed south in 2017, the subsequent closure of several refineries and pipelines not only pushed prices up. of gasoline, but has forced many dealers to shut down their pumps due to lack of product. Energy lawyers and oil and gas financiers in Dallas were safe from the storm, but they couldn’t fill up on Range Rovers. The ransomware attack on the colonial pipeline system in 2021 led to a formal state of emergency in 17 states and the District of Columbia. Vladimir Putin’s energy war against the European Union seems to have at least slightly awakened Brussels and Berlin, but Washington seems almost completely blind to equally serious US vulnerabilities.

The complexity of producing, refining and distributing petroleum fuels leads to some counterintuitive results. Mexico is a major oil producer, but is heavily dependent on gasoline imported from the United States. (About half of U.S. refinery exports go to Latin America, with Mexico being by far the largest single destination.) Saudi Arabia imports fuel oil from Russia. Iran imports diesel and, until a few years ago, most of its gasoline. The United States, the world’s largest oil producer and a major oil exporter, imports … oil. A lot.

Oil is not homogeneous Many US refineries are optimized for the type of oil we have been importing for years rather than the type of oil produced here. Sometimes, oil imported from Canada or Mexico is simply cheaper for US refineries. We also import refined petroleum products, ranging from domestic heating oil to gasoline and diesel. We also saw the occasional cargo of LNG from the Russian Arctic heading for New Englandbecause we don’t have enough pipeline capacity to pump gas from Pennsylvania to Massachusetts when demand peaks.

If US refineries and wholesalers were cut off from such imports, it would not be cheap or easy, or quick, to replace them. This is not a case for energy autarchy, but a case for encouraging the development of a more solid, diversified and safer national energy industry, particularly when it comes to gas pipelines and other modes of distribution, that “infrastructure” that presidents are always talking.

This is the Americans conversation should to have. Instead, we’ll probably spend the winter debating whether a 60-cent swing in the high-octane price represents a catastrophic failure of the national priest-king to properly propitiate the god of economics.

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