Refiners are getting squeezed by high crude oil prices and faltering U.S. demand, so let’s increase their costs!

Michael Giberson

The Houston Chronicle reports on the difficult financial position of many U.S. refineries. Crude oil prices are up for refineries relying on international markets, but U.S. consumers are moderating their gasoline consumption at higher prices and so refiners find their margins to be getting squeezed.

A good article, but right at the end we get this oddball proposal:

Still, refineries could do more to curb skyrocketing gasoline prices, said Amy Myers Jaffe, fellow at Rice University’s Baker Institute. A government mandate for refineries to maintain a certain level of gasoline in storage would help to curb market fears of a shortage, fears that fuel rapid price spikes, she said.

“We should be requiring inventories of gasoline,” Jaffe said, to reassure the market that supplies won’t run short.

Seems to me a non sequitur wrapped in a riddle: refineries should be doing more to curb skyrocketing gasoline costs? Why refineries? Every indication is that gasoline prices are being driven by world oil crude oil prices (expect for the bottlenecked supplies of the northern Rocky Mountain states). There is no indication that “the market” is fearing a shortage of gasoline, is there? By the way, gasoline inventories are pretty high for this time of year AND consumption has been trending down, so who thinks consumer fears of a gasoline shortage are a problem?

And, I guess this is my real question, what makes Jaffe think that the solution to the refineries’ current woes is to impose regulations that would significantly add to their costs? Exactly how is this going to “do more to curb skyrocketing gasoline prices”?

Jaffe is usually smarter than this, so I’m a bit confused by the idea.

Hamilton on the main reason oil prices are high

Michael Giberson

Saudi oil minister Ali al-Naimi said  there was “no rational reason” for current high oil prices, since there were enough supplies and all consumers were getting oil.

James Hamilton rises to object, “if oil prices were lower, the world would want to consume more than is currently being produced.” Hamilton examines what the quantity demanded might be at lower prices and concludes we’d need about an additional 15 million barrels a day in supply to meet consumer demand at oil prices of a decade ago.

So the higher price is encouraging some consumers to reduce their consumption while urging suppliers to increase, if they can, the amount of oil they bring to the market.