Hot air at the pump

April 4, 2004

Pump prices for gasoline are now at record levels, says the AAA, formerly known as the American Automobile Association. The price of a gallon of self-serve regular unleaded gas has risen to a nationwide average of $1.76. Prices in Chicago are even higher.

Of course, that's not really a record, as consumers with a good memory know full well. Prices were higher last August and a lot higher three years ago in the spring of 2001--during the last gas price "crisis."

Adjusted for inflation, gas prices aren't that high at all. The real record for gasoline prices was set back in 1981 when consumers were paying the 2004 dollar equivalent of $2.83 a gallon.

This year the Energy Department predicts pump prices will average $1.67 a gallon nationwide, even taking into account a projected springtime peak of $1.83.

But those facts aren't going to keep people from demanding that the government "do something" about high gas prices. For their part, the politicians are only too happy to oblige, even if the "something" consists primarily of hot air.

President Bush says we wouldn't be in this mess if Congress had passed his energy bill, even though the legislation collapsed on Capitol Hill under the weight of all the pork in it. His presumptive Democratic challenger, Sen. John Kerry, says we wouldn't be in this mess if the president would stop topping off the Strategic Petroleum Reserve, an emergency reservoir meant to keep the country running if foreign supplies are disrupted. Bush raps Kerry for having once supported a 50-cent increase in the gas tax, which would have catapulted prices even higher.

Democrats in Congress are clamoring for the government to release oil from the strategic reserve to bring down prices. That's exactly the wrong thing to do.

It is a fool's errand to try to manipulate prices with relatively minor volume adjustments in a fungible commodity like oil in a global market. The Associated Press reports that when then-President Clinton tried to mitigate high home heating oil prices in 2000 by releasing 30 million gallons from the strategic reserve, much of the oil ended up displacing planned U.S. imports that were then diverted to other countries.

Here's a snapshot of America's current energy policy: Don't look for more oil. Don't expand production. Don't build new refineries. Don't promote conservation. Move into political crisis rhetoric whenever the price of gasoline jumps--as it is wont to do being one of those commodities derived from oil, which has a price that ricochets depending on the daily--sometimes hourly--balance between supply and demand.

And for heaven's sake, don't ever suggest that Americans would worry less about the price of gas if they didn't drive vehicles that consume it as fast as the beer goes down at the Billy Goat on a Friday night.

There are many reasons for this spring run-up in prices. The Organization of Petroleum Exporting Countries pumps about a third of the world's oil. Speculators were having a field day trying to make a buck on the cartel's lack of clarity, before OPEC announced Wednesday that it was cutting production by one million barrels a day, about 4 percent. Go figure--oil prices actually dropped on the news of the cut.

Economic growth is strong again and demand is soaring in the U.S. and Asia, particularly in China. Refinery capacity has grown little in the U.S. That limited refining capacity becomes a particular problem just about now when we're about to switch over to all those boutique "summer blends" of gasoline required to reduce pollution during the peak driving season.

The Chicago-Milwaukee corridor is one of the high-ozone areas required to sell specialized summer blends. That's one reason gas prices are so much higher here. The other is that local governments impose taxes on top of state and federal taxes. A $2 gallon of gas in Chicago includes about 65 cents in taxes and fees.

This run-up in prices probably will abate before long as the market adjusts--if the politicians don't mess it up. But here's the bottom line: Painful as this may be for people who by choice or necessity drive a gas-guzzler or face a long commute, Americans don't have a constitutional right to cheap gas. Gas is a commodity derived from oil traded worldwide--like steel or corn or gold. It goes up in price; it goes down in price. Prices have been relatively low for awhile, in part because the sluggish economy dampened demand. The economy is no longer sluggish. For that reason and others, oil prices are up and so are the prices at the pump.

Gas comes at a price. The hot air is free.

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