Gasoline prices
What impacts U.S. consumers and voters most directly is the price of gasoline and diesel fuel, not only because of what they pay at the pump but also because higher fuel costs raise the price of many consumer goods. Fuel price hikes can be a major drag on the whole economy.
Gas prices are most politically relevant because they are a sharp pain that voters will be feeling this summer and fall, before they vote. All three candidates (and even President Bush) seem to “get” this. But the summer holiday for the 18.4-cent federal excise tax on gasoline proposed by Clinton and McCain will not, in the view of the experts and the media, do much more than slightly numb the voters before their wallets are amputated. [For stories, here’s one from NPR; one from the New York Times, and one from Newsweek.]
With Democrats and Republicans both split on the gas tax holiday, the chances of it passing a narrowly-divided Congress in an election year seem close to nil. The biggest danger, from all three candidates’ perspective, is that the public may conclude that they have proposed nothing serious or substantial to address gas prices. During the time since McCain proposed the gas-tax holiday, the price of gasoline has actually risen more than the 18.4 cents worth of tax relief it would offer, according to the Energy Information Administration.
That it will do nothing to solve the problem is a given that even McCain admits. The danger to candidates is that it will do nothing to get them elected. If Congress passed a tax holiday and the price of gas stayed flat (because of a rise in the underlying commodity price) or went up, the tactic could boomerang.
The price of gasoline at the end of April 2008, averaged over the whole U.S., was about $3.60 — up about $0.63 from a year earlier. Even worse was the price of diesel, $4.17 — up $1.36 from a year earlier.
As for crude oil prices, experts estimate that the cost of crude oil accounts for anywhere from 46 percent of the retail price of refined gasoline to 72 percent. Obviously, the numbers are fuzzy. The looseness of the linkage between wholesale oil and retail gasoline prices raises questions. Journalists might well ask whether oil companies, refiners, distributors, and retailers are taking advantage of the situation. But they rarely do ask.
While crude prices are a factor, most experts would agree that tightly limited U.S. refinery capacity is also a big factor in pushing domestic gasoline prices higher.
Less easy to answer: why is refinery capacity limited and what can be done about it?
Environmentalists and consumer advocates tend to argue that companies are colluding and dragging their feet on purpose — since high gas and diesel prices help profits. Companies blame government regulations.
There are grounds for skepticism. Utility and gas transmission companies first blamed the California “energy crisis” of 2001 on clean air and market regulation, too. Few news media questioned this explanation. But it turned out to be totally untrue, and a cover for billions of dollars worth illegal market manipulation by companies like Enron.
The Nieman Watchdog has previously raised the question of whether there may be manipulation or collusion in the U.S. gasoline market. [Click here and here.]
Some numbers: In 1981, there were 324 refineries with a total capacity of 18.6 million barrels per day, according to the EIA. As of 2007, there were 149, with a capacity of 17.4 bpd.
It is no secret that the industry deliberately shut refineries to improve profits in recent decades. Industry says it is now building new capacity at existing plants – but despite rising prices and growing demand, refineries are again cutting back their capacity-building plans.