Gasoline Prices Are No Conspiracy

As an old X-Files fan, I like almost nothing better than a good, old-fashioned conspiracy theory. And apparently so does Congress. Earlier this week, the House passed an anti-price-gouging bill in response to higher gasoline prices. The legislation would make it a crime to overcharge for fuel. Gas prices must not be "unusually excessive"—though if that standard applied to other consumer items, every Starbucks in America might be shuttered. But there is little evidence that conspiracies or collusion among gas stations or oil companies is what's behind the rise in gas prices to over $3 a gallon nationwide. (We're at record levels in inflation-adjusted term, but prices would need to be at least a dollar higher to take into account that the average American is richer now than during the last peak back in 1981.) A new piece of analysis from economics consulting firm Global Insight makes some good points on the issue:

1) No new refineries have been built since 1976, although capacity at existing refineries has been expanded. In fact, there are fewer refineries in operation now than back then. The tightness of supply vs. continuing increases in demand means that the industry is especially vulnerable to any supply disruptions during the crucial spring season when supplies are being built for the summer.

2) This year, a series of unscheduled shutdowns for maintenance has kept refinery utilization rates lower than normal, leading to gasoline inventories that are unusually low for the time of year. The result is that the difference between the wholesale price of gasoline and the price of crude oil is exceptionally high, meaning this is a gasoline supply issue rather than an oil supply issue—just like after Hurricane Katrina. Because of the various refinery problems, we are seeing gas prices that would be more appropriate if oil was closer to $90 a barrel. A bit of good news: Global Insight expects gas prices to sink back down to around $2.70 a gallon as summer wears on. A bit of bad news: This could be an "unusually excessive" hurricane season, putting GulfCoast oil and gas operations—and that $2.70 a gallon prediction—at risk.