Addressing the high oil prices

Mr. McCain and Mrs. Clinton have brought up a temporary solution to high oil prices for the summer; a tax holiday from Memorial Day to Labor Day.  In essence, the 18% or so gas tax the federal government currently charges would be eliminated for four months.  It sounds nice and might have a short-term effect, but there is no real solution in this grandstanding at all.  It is just politicians assuming that we are dumb.  For the record, Obama is against the idea; although in 2000 he supported a similar plan in Illinois.  This time he is against it because the funds go to repair and expand the highway system.

What if we were to try these three measures?  Would they have any impact on the price of gas?

  • End state fuel-mixture mandates — Our refineries have to produce upwards of 30 different formulations of gasoline for different states. It makes our supply chain brittle when it should be flexible and leaves us vulnerable to sudden price hikes when refineries have problems.
  • Begin expediting the approval process for more refineries — We have not built a new refinery in the US for 30 years. We keep expanding the capacity at existing refineries instead, and that also leaves the supply chain vulnerable to disruption when a refinery has to shut down. They now have to run at full capacity constantly in order to meet demand and keep prices down. Over the last two decades, we also now have to import more and more refined gasoline instead of crude to keep up with the demand, thanks in part to a lack of refinery capacity here in the US.
  • Allow more domestic drilling — Oil, like any commodity, increases in price when demand goes up and supply doesn’t meet it. With China and India vastly increasing their demand, prices have gone up accordingly. The only way to get the prices down is to either reduce demand or increase supply. That means the US has to start using its own resources rather than living off the resources of others.
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