Sunday, April 30, 2006
Editorial: Supply and demand guarantee high prices
Political pandering aside, President Bush and Congress are powerless to control gas prices unless they seriously diminish demand for oil.
From the RoundTable blog
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An election year is colliding with high gas prices and a vulnerable Republican congressional majority in a perfect storm of political pandering.
Republicans and Democrats alike are doing their best to convince voters that Congress and the president can somehow ignore the law of supply and demand to rein in rising costs at the pumps.
Senate Majority Leader Bill Frist and House Speaker Dennis Hastert are screaming for investigations into price fixing and gouging.
Both sides of the aisle have called for imposing a windfall-profit tax on bulging oil company coffers. Some call for a temporary suspension of federal gas taxes or a $100 rebate for every taxpayer.
President Bush temporarily halted refilling of the Strategic Petroleum Reserve. Diverting an extra 2.1 million barrels into the supply chain in May would supply America's petroleum needs for a staggering two hours.
The global oil market is a complex beast. But the reasons for $3-a-gallon gas aren't too difficult to understand.
The law of supply and demand is the main culprit. Global demand for oil -- especially in China and India -- is outpacing supply. High demand plus a relatively limited supply equals high prices.
The energy bill passed by Congress shares some of the blame. It increased requirements for ethanol content in gasoline and refused liability protection for the manufacturers of MTBE -- a gasoline additive and suspected carcinogen that has leaked into a number of water supplies across the nation.
Supply and demand kicks in again: Both decisions by Congress upped the demand for ethanol without increasing the supply. So the cost of ethanol rises, adding to the price at the pump.
Yes, the federal government should step up oversight of the petroleum futures market and the oil industry to prevent price gouging -- though the Federal Trade Commission already told Congress that the definition of price gouging is "squishy" enough to make any definitive finding difficult.
Most likely, oil companies aren't price gouging. Yes, they're making huge profits as the price of gas rises.
But the rising price of gas is one of the few working brakes on increasing demand. The alternative to high prices could be widespread shortages this summer.
If President Bush and members of Congress want to do something meaningful to lower gas prices, they'll work to find both short-term and long-term methods for curbing Americans' demand for oil.
For a long-overdue start, Congress could pass a meaningful increase in vehicle fuel efficiency requirements.
Instead of punishing oil companies for "windfall profits," Congress could simply roll back the $12 billion in unnecessary tax breaks for the industry included in the energy bill.
Instead of the absolutely meaningless gesture with the Strategic Petroleum Reserve, President Bush should call for a national campaign for energy independence, harnessing the American ingenuity and drive that sent a man to the moon in less than a decade.
There are solutions to high gasoline prices. But despite what politicians will say this election year, none will be simple, easy or cheap.
