R-Squared Energy Blog

Pure Energy

Inventory Management

I have been engaged in an e-mail exchange with a journalist overseas who is writing an article on gasoline pricing in the U.S. I don’t want to give anything away, so I won’t be any more specific than that. However, I do want to share a couple of responses that I sent regarding some questions of price-gouging. In one response, I commented on the writings of Tim Hamilton and Jamie Court at the FTCR. I have documented their cluelessness in a previous essay:

Another Uninformed Consumer Watchdog

This time, I was asked about this particular document by Court and Hamilton:

Low gasoline inventories set the stage for $4 at the pump in 2006

Their claim is that oil companies are engineering price spikes by purposely keeping inventories low. I am really stunned at the level of ignorance displayed here. I looked back at some of their earlier writings, and they were advocating steps that we need to take to keep gasoline under $2.00 a gallon. Do they really think cheap fuel is a good thing? Apparently they do, which tells me they haven’t thought through the implications. I guess they don’t understand that low gasoline prices will simply enable us to run through our fossil fuel endowment at the maximum possible rate.

First, they seem to think that oil companies exist primarily to serve the public’s desire for cheap gasoline. However, oil companies exist to make a profit, and have a responsibility to their shareholders. Court and Hamilton also criticize the oil companies for their profits, even though oil company profit margins are about average for all industries.

What they did get right is that inventory levels do dictate pricing. However, the suggestion that oil companies are purposely keeping inventories low in order to maximize profits is ludicrous. Lack of refining capacity required to meet the (too) strong U.S. demand is a serious issue. Just look at refinery utilization, which is a number that is publicly available at the Energy Information Administration. Prior to Hurricane Katrina, utilization was running at 95%, which is close to the maximum possible level. (Some capacity is always offline for maintenance). Following the hurricane, some very large refineries were knocked offline and utilization dropped to about 85%. However, those refineries that were unaffected were still running just as hard as they could. Fall maintenance was postponed in order to supply needed product to the market. By spring, that deferred maintenance had to be completed, and this again reduced capacity. (Spring is a very popular time for maintenance, because summer demand hasn’t yet picked up, and the weather is usually cooperative.)

However, let’s assume for a minute that refinery capacity is not an issue. What if we could make as much gasoline as we wanted? Would we run with completely full inventories? Do you know of any business that runs with grossly excess inventories? If we maintain a 100,000 barrel gasoline tank 95% full all of the time, instead of 75% full all of the time, there are 20,000 barrels of product constantly in inventory that exist merely as additional cost to the company. Those 20,000 barrels represent oil that was purchased, but is just setting there earning no dollars. The only reason for maintaining extremely high inventories would be to make sure the public is never inconvenienced, and is always able to purchase cheap fuel, regardless of the costs to the oil companies.

Even thought on rare occasions it might be nice if the tank was 95% full, that additional 20,000 barrels is an added cost on all other occasions. Businesses do not manage inventories in the way that Hamilton and Court believe they should. When there is a hurricane in the Gulf of Mexico, businesses quickly run out of flashlights and bottled water. Does this mean that all Gulf Coast businesses should stock twice as much inventory at all times, just in case a hurricane hits? It would not be profitable to tie up that much money in inventory, in anticipation of an event that will only take place on a multi-year cycle (for a given location).

I would point out that a recent report by the California Energy Commission refutes the outrageous claims of Court and Hamilton. Taken from a recent OPIS report:

Parts of California’s high profile report on the huge gas price spikes in the state last spring read like a re-run of some past probes.

The report, by the California Energy Commission, puts down refinery outages leading to a supply squeeze, coupled with a surge in exports, as the key factors behind record high prices in the state this year.

The lengthy report cites a stunning number of planned outage days at California refineries in the first six months of 2006 compared with same period last year – 175 vs. 58. Most of the unplanned outages, comparing the same periods, lasted twice as long this year.

Also, it found port congestion a factor, as well as high additives costs and the introduction of the new ultra-low-sulfur diesel fuel (ULSD).

It dismisses the notion held by some that pump prices dashed to $3.33/gal because refiners practiced price gouging (dubbed goug-onomics by some consumer groups).

Refiner group WSPA cheered the CEC’s findings saying that they confirm its assertions that market condition is behind the price volatility this year.

Not surprisingly, the FTCR cried foul:

The Foundation For Taxpayer & Consumer Rights, an industry watchdog, called the CEC’s findings a “whitewash.”

“Oil companies are ripping off Californians in exactly the same way electricity profiteers did by artificially shorting the market,” snapped FTCR President Jamie Court.

I guess they can’t handle the truth, which is that market forces dictate prices. In conclusion, it is clear that Court and Hamilton know nothing about running a business, nor do they understand basic economics. They project their views as to how oil companies should be run, and then criticize them for not running in this way. However, if oil companies operated as they believe they should, shareholders would flee the company, profits would plummet, and new capital for capacity expansions would be hard to come by.

August 22, 2006 Posted by | FTCR, gas inventories, gas prices, Jamie Court, oil companies, price gouging, Tim Hamilton | 5 Comments

Inventory Management

I have been engaged in an e-mail exchange with a journalist overseas who is writing an article on gasoline pricing in the U.S. I don’t want to give anything away, so I won’t be any more specific than that. However, I do want to share a couple of responses that I sent regarding some questions of price-gouging. In one response, I commented on the writings of Tim Hamilton and Jamie Court at the FTCR. I have documented their cluelessness in a previous essay:

Another Uninformed Consumer Watchdog

This time, I was asked about this particular document by Court and Hamilton:

Low gasoline inventories set the stage for $4 at the pump in 2006

Their claim is that oil companies are engineering price spikes by purposely keeping inventories low. I am really stunned at the level of ignorance displayed here. I looked back at some of their earlier writings, and they were advocating steps that we need to take to keep gasoline under $2.00 a gallon. Do they really think cheap fuel is a good thing? Apparently they do, which tells me they haven’t thought through the implications. I guess they don’t understand that low gasoline prices will simply enable us to run through our fossil fuel endowment at the maximum possible rate.

First, they seem to think that oil companies exist primarily to serve the public’s desire for cheap gasoline. However, oil companies exist to make a profit, and have a responsibility to their shareholders. Court and Hamilton also criticize the oil companies for their profits, even though oil company profit margins are about average for all industries.

What they did get right is that inventory levels do dictate pricing. However, the suggestion that oil companies are purposely keeping inventories low in order to maximize profits is ludicrous. Lack of refining capacity required to meet the (too) strong U.S. demand is a serious issue. Just look at refinery utilization, which is a number that is publicly available at the Energy Information Administration. Prior to Hurricane Katrina, utilization was running at 95%, which is close to the maximum possible level. (Some capacity is always offline for maintenance). Following the hurricane, some very large refineries were knocked offline and utilization dropped to about 85%. However, those refineries that were unaffected were still running just as hard as they could. Fall maintenance was postponed in order to supply needed product to the market. By spring, that deferred maintenance had to be completed, and this again reduced capacity. (Spring is a very popular time for maintenance, because summer demand hasn’t yet picked up, and the weather is usually cooperative.)

However, let’s assume for a minute that refinery capacity is not an issue. What if we could make as much gasoline as we wanted? Would we run with completely full inventories? Do you know of any business that runs with grossly excess inventories? If we maintain a 100,000 barrel gasoline tank 95% full all of the time, instead of 75% full all of the time, there are 20,000 barrels of product constantly in inventory that exist merely as additional cost to the company. Those 20,000 barrels represent oil that was purchased, but is just setting there earning no dollars. The only reason for maintaining extremely high inventories would be to make sure the public is never inconvenienced, and is always able to purchase cheap fuel, regardless of the costs to the oil companies.

Even thought on rare occasions it might be nice if the tank was 95% full, that additional 20,000 barrels is an added cost on all other occasions. Businesses do not manage inventories in the way that Hamilton and Court believe they should. When there is a hurricane in the Gulf of Mexico, businesses quickly run out of flashlights and bottled water. Does this mean that all Gulf Coast businesses should stock twice as much inventory at all times, just in case a hurricane hits? It would not be profitable to tie up that much money in inventory, in anticipation of an event that will only take place on a multi-year cycle (for a given location).

I would point out that a recent report by the California Energy Commission refutes the outrageous claims of Court and Hamilton. Taken from a recent OPIS report:

Parts of California’s high profile report on the huge gas price spikes in the state last spring read like a re-run of some past probes.

The report, by the California Energy Commission, puts down refinery outages leading to a supply squeeze, coupled with a surge in exports, as the key factors behind record high prices in the state this year.

The lengthy report cites a stunning number of planned outage days at California refineries in the first six months of 2006 compared with same period last year – 175 vs. 58. Most of the unplanned outages, comparing the same periods, lasted twice as long this year.

Also, it found port congestion a factor, as well as high additives costs and the introduction of the new ultra-low-sulfur diesel fuel (ULSD).

It dismisses the notion held by some that pump prices dashed to $3.33/gal because refiners practiced price gouging (dubbed goug-onomics by some consumer groups).

Refiner group WSPA cheered the CEC’s findings saying that they confirm its assertions that market condition is behind the price volatility this year.

Not surprisingly, the FTCR cried foul:

The Foundation For Taxpayer & Consumer Rights, an industry watchdog, called the CEC’s findings a “whitewash.”

“Oil companies are ripping off Californians in exactly the same way electricity profiteers did by artificially shorting the market,” snapped FTCR President Jamie Court.

I guess they can’t handle the truth, which is that market forces dictate prices. In conclusion, it is clear that Court and Hamilton know nothing about running a business, nor do they understand basic economics. They project their views as to how oil companies should be run, and then criticize them for not running in this way. However, if oil companies operated as they believe they should, shareholders would flee the company, profits would plummet, and new capital for capacity expansions would be hard to come by.

August 22, 2006 Posted by | FTCR, gas inventories, gas prices, Jamie Court, oil companies, price gouging, Tim Hamilton | 10 Comments

Another Uninformed Consumer Watchdog

I have an essay on conservation ready to go, with some discussion of how Europe deals with high gas prices. However, a couple of newsworthy items are worth commenting on. The Oil Drum beat me to the punch on Chuck Schumer’s grandstanding, but another article caught my eye yesterday.

I read a news release from published a study (if you can call it that) by Tim Hamilton, in which he concluded that “corporate markups and profiteering are responsible for spring price spikes” (2). Hamilton claims that the oil industry has blamed 3 factors for rising gasoline prices. They are:

1. Higher oil prices.
2. Higher costs for reformulated gasoline.
3. The switch from MTBE to ethanol.

He then goes on to attack each factor, trying to “prove” that the biggest reason for higher gas prices is none of these, but instead increased profiteering. However, Hamilton is certainly not telling the whole story. He is out to get the oil industry to satisfy a political agenda, and probably feels like the end justifies the means. But here is what he forgot to tell you.

The oil industry has also blamed another factor, consistently and with good reason, since Hurricane Katrina struck. While the 3 factors mentioned above have played some part in higher gas prices, none of them are the biggest culprit. The biggest culprit is that refining capacity has struggled to keep up with demand since the hurricane. Gasoline inventories continue to fall week after week, despite the higher prices. That means that prices still have not been increased to a level sufficient to stem demand. As long as gasoline inventories continue to drop, prices will continue to go up. If they don’t, shortages will eventually result.

Here is a graph showing refinery utilization before and after Hurricane Katrina:


Source: American Petroleum Institute as published in the Oil & Gas Journal Statistics

It is clear that we have yet to recover refining capacity to the level it was before the hurricane. What this means is that we have a problem with supply and demand, which means prices will rise as they are doing to prevent shortages. (What Chuck Schumer thinks it means is that refiners are deliberately withholding product from the market).

Even so, gasoline inventories continue to fall, as they have been doing for seven weeks straight:


Source: This Week In Petroleum at http://www.eia.doe.gov/

Gasoline stocks are in free fall. Again, I have to wonder if Mr. Hamilton is completely ignorant of supply and demand. As long as the stocks continue to fall, prices will continue to rise.

Now, nobody is denying that this has resulted in higher profits for oil companies. That is what capitalism is based upon: Supply and demand. It seems like many people do not understand basic economics. When someone has a resource, and demand goes up, prices will increase until supply and demand are balanced. If the resource was not scarce, then the supplier couldn’t raise prices, because someone else would continue to sell at a lower price, and could steal the customers. Hamilton and others have completely mixed up cause and effect. The cause of higher gas prices is not increased profiteering. The cause is very tight supply, with some contribution from the other factors mentioned above. The effect is that oil companies are making more money.

Hamilton was not alone in his cluelessness. From the same news release:

“Oil companies are opportunistically using the rising world price for crude oil as an excuse to excessively raise gasoline prices and pump up their profits, even though the spot market price for crude has gone up far more slowly than gasoline prices,” said FTCR President Jamie Court. “In addition, the spot price is higher than most oil companies pay, since they either harvest their own crude or pay more stable and often much lower contract prices.

This study should be a wake-up call for California voters who will vote in November on a ballot initiative to tax windfall profits by oil companies so the state can develop alternatives to the petroleum economy.”

And there we have the money quote. The FTCR wants to punish the oil companies for making money, and they want to funnel the money to a competing industry. They are using this misleading study to push their political agenda. Now, I am all for alternative energy. I have made that abundantly clear. But the ethanol industry already benefits from very generous subsidies, and the energy they produce is trivial with respect to the size of the subsidy. Yet somehow, the existing subsidies and mandates are still not enough. Shouldn’t that trigger a flag in people’s minds that something is not quite right here with ethanol economics? I would be willing to bet that >90% of the voters don’t understand why there is controversy surrounding the use of grain ethanol as a fuel. I bet the FTCR doesn’t understand the controversy. They think it is a good idea to punish oil companies and they think they know where the money should go.

The person bankrolling this initiative , Vinod Khosla, is a major investor into the industries that would directly benefit if the initiative is passed (3). Doesn’t anyone see a problem with this? Isn’t there a conflict of interest here, which may prevent a much better solution from being enacted? Here is a man who stands to gain millions if he can just convince the voters to punish the oil companies and send that money his way. If you are going to pass a windfall profits tax, why not use the proceeds to give rebates for the purchase of very fuel efficient vehicles? Wouldn’t that be a far wiser use of the money, with immediate benefits?

There is too little personal responsibility here. People can “punish” the oil companies by avoiding long commutes, buying a more fuel efficient vehicle, and reducing unnecessary driving. The FTCR would instead absolve people of their personal responsibility and blame it all on the oil companies. But the reason oil companies are so profitable is that the American public has an insatiable appetite for energy. Shifting money from one industry to another – especially one as inefficient as the production of alcohol from grain – is not the answer. The results will be less money for capital projects, which will lead to fuel shortages and ever higher prices. Didn’t we learn that the last time around?

References

1. New Gasoline Study Shows Profits, Not Crude Oil Prices Or Ethanol, Are Driving Pump Price Spike

2. Why Gasoline Prices are Headed for $3.50 at the Pump

3. “Valley man bankrolls clean-energy initiative.” The Mercury News, April 3, 2006.

April 19, 2006 Posted by | FTCR, gas inventories, Hurricane Katrina, price gouging, Tim Hamilton, Vinod Khosla | Comments Off on Another Uninformed Consumer Watchdog

Another Uninformed Consumer Watchdog

I have an essay on conservation ready to go, with some discussion of how Europe deals with high gas prices. However, a couple of newsworthy items are worth commenting on. The Oil Drum beat me to the punch on Chuck Schumer’s grandstanding, but another article caught my eye yesterday.

I read a news release from published a study (if you can call it that) by Tim Hamilton, in which he concluded that “corporate markups and profiteering are responsible for spring price spikes” (2). Hamilton claims that the oil industry has blamed 3 factors for rising gasoline prices. They are:

1. Higher oil prices.
2. Higher costs for reformulated gasoline.
3. The switch from MTBE to ethanol.

He then goes on to attack each factor, trying to “prove” that the biggest reason for higher gas prices is none of these, but instead increased profiteering. However, Hamilton is certainly not telling the whole story. He is out to get the oil industry to satisfy a political agenda, and probably feels like the end justifies the means. But here is what he forgot to tell you.

The oil industry has also blamed another factor, consistently and with good reason, since Hurricane Katrina struck. While the 3 factors mentioned above have played some part in higher gas prices, none of them are the biggest culprit. The biggest culprit is that refining capacity has struggled to keep up with demand since the hurricane. Gasoline inventories continue to fall week after week, despite the higher prices. That means that prices still have not been increased to a level sufficient to stem demand. As long as gasoline inventories continue to drop, prices will continue to go up. If they don’t, shortages will eventually result.

Here is a graph showing refinery utilization before and after Hurricane Katrina:


Source: American Petroleum Institute as published in the Oil & Gas Journal Statistics

It is clear that we have yet to recover refining capacity to the level it was before the hurricane. What this means is that we have a problem with supply and demand, which means prices will rise as they are doing to prevent shortages. (What Chuck Schumer thinks it means is that refiners are deliberately withholding product from the market).

Even so, gasoline inventories continue to fall, as they have been doing for seven weeks straight:


Source: This Week In Petroleum at http://www.eia.doe.gov/

Gasoline stocks are in free fall. Again, I have to wonder if Mr. Hamilton is completely ignorant of supply and demand. As long as the stocks continue to fall, prices will continue to rise.

Now, nobody is denying that this has resulted in higher profits for oil companies. That is what capitalism is based upon: Supply and demand. It seems like many people do not understand basic economics. When someone has a resource, and demand goes up, prices will increase until supply and demand are balanced. If the resource was not scarce, then the supplier couldn’t raise prices, because someone else would continue to sell at a lower price, and could steal the customers. Hamilton and others have completely mixed up cause and effect. The cause of higher gas prices is not increased profiteering. The cause is very tight supply, with some contribution from the other factors mentioned above. The effect is that oil companies are making more money.

Hamilton was not alone in his cluelessness. From the same news release:

“Oil companies are opportunistically using the rising world price for crude oil as an excuse to excessively raise gasoline prices and pump up their profits, even though the spot market price for crude has gone up far more slowly than gasoline prices,” said FTCR President Jamie Court. “In addition, the spot price is higher than most oil companies pay, since they either harvest their own crude or pay more stable and often much lower contract prices.

This study should be a wake-up call for California voters who will vote in November on a ballot initiative to tax windfall profits by oil companies so the state can develop alternatives to the petroleum economy.”

And there we have the money quote. The FTCR wants to punish the oil companies for making money, and they want to funnel the money to a competing industry. They are using this misleading study to push their political agenda. Now, I am all for alternative energy. I have made that abundantly clear. But the ethanol industry already benefits from very generous subsidies, and the energy they produce is trivial with respect to the size of the subsidy. Yet somehow, the existing subsidies and mandates are still not enough. Shouldn’t that trigger a flag in people’s minds that something is not quite right here with ethanol economics? I would be willing to bet that >90% of the voters don’t understand why there is controversy surrounding the use of grain ethanol as a fuel. I bet the FTCR doesn’t understand the controversy. They think it is a good idea to punish oil companies and they think they know where the money should go.

The person bankrolling this initiative , Vinod Khosla, is a major investor into the industries that would directly benefit if the initiative is passed (3). Doesn’t anyone see a problem with this? Isn’t there a conflict of interest here, which may prevent a much better solution from being enacted? Here is a man who stands to gain millions if he can just convince the voters to punish the oil companies and send that money his way. If you are going to pass a windfall profits tax, why not use the proceeds to give rebates for the purchase of very fuel efficient vehicles? Wouldn’t that be a far wiser use of the money, with immediate benefits?

There is too little personal responsibility here. People can “punish” the oil companies by avoiding long commutes, buying a more fuel efficient vehicle, and reducing unnecessary driving. The FTCR would instead absolve people of their personal responsibility and blame it all on the oil companies. But the reason oil companies are so profitable is that the American public has an insatiable appetite for energy. Shifting money from one industry to another – especially one as inefficient as the production of alcohol from grain – is not the answer. The results will be less money for capital projects, which will lead to fuel shortages and ever higher prices. Didn’t we learn that the last time around?

References

1. New Gasoline Study Shows Profits, Not Crude Oil Prices Or Ethanol, Are Driving Pump Price Spike

2. Why Gasoline Prices are Headed for $3.50 at the Pump

3. “Valley man bankrolls clean-energy initiative.” The Mercury News, April 3, 2006.

April 19, 2006 Posted by | FTCR, gas inventories, Hurricane Katrina, price gouging, Tim Hamilton, Vinod Khosla | 11 Comments

Another Uninformed Consumer Watchdog

I have an essay on conservation ready to go, with some discussion of how Europe deals with high gas prices. However, a couple of newsworthy items are worth commenting on. The Oil Drum beat me to the punch on Chuck Schumer’s grandstanding, but another article caught my eye yesterday.

I read a news release from published a study (if you can call it that) by Tim Hamilton, in which he concluded that “corporate markups and profiteering are responsible for spring price spikes” (2). Hamilton claims that the oil industry has blamed 3 factors for rising gasoline prices. They are:

1. Higher oil prices.
2. Higher costs for reformulated gasoline.
3. The switch from MTBE to ethanol.

He then goes on to attack each factor, trying to “prove” that the biggest reason for higher gas prices is none of these, but instead increased profiteering. However, Hamilton is certainly not telling the whole story. He is out to get the oil industry to satisfy a political agenda, and probably feels like the end justifies the means. But here is what he forgot to tell you.

The oil industry has also blamed another factor, consistently and with good reason, since Hurricane Katrina struck. While the 3 factors mentioned above have played some part in higher gas prices, none of them are the biggest culprit. The biggest culprit is that refining capacity has struggled to keep up with demand since the hurricane. Gasoline inventories continue to fall week after week, despite the higher prices. That means that prices still have not been increased to a level sufficient to stem demand. As long as gasoline inventories continue to drop, prices will continue to go up. If they don’t, shortages will eventually result.

Here is a graph showing refinery utilization before and after Hurricane Katrina:


Source: American Petroleum Institute as published in the Oil & Gas Journal Statistics

It is clear that we have yet to recover refining capacity to the level it was before the hurricane. What this means is that we have a problem with supply and demand, which means prices will rise as they are doing to prevent shortages. (What Chuck Schumer thinks it means is that refiners are deliberately withholding product from the market).

Even so, gasoline inventories continue to fall, as they have been doing for seven weeks straight:


Source: This Week In Petroleum at http://www.eia.doe.gov/

Gasoline stocks are in free fall. Again, I have to wonder if Mr. Hamilton is completely ignorant of supply and demand. As long as the stocks continue to fall, prices will continue to rise.

Now, nobody is denying that this has resulted in higher profits for oil companies. That is what capitalism is based upon: Supply and demand. It seems like many people do not understand basic economics. When someone has a resource, and demand goes up, prices will increase until supply and demand are balanced. If the resource was not scarce, then the supplier couldn’t raise prices, because someone else would continue to sell at a lower price, and could steal the customers. Hamilton and others have completely mixed up cause and effect. The cause of higher gas prices is not increased profiteering. The cause is very tight supply, with some contribution from the other factors mentioned above. The effect is that oil companies are making more money.

Hamilton was not alone in his cluelessness. From the same news release:

“Oil companies are opportunistically using the rising world price for crude oil as an excuse to excessively raise gasoline prices and pump up their profits, even though the spot market price for crude has gone up far more slowly than gasoline prices,” said FTCR President Jamie Court. “In addition, the spot price is higher than most oil companies pay, since they either harvest their own crude or pay more stable and often much lower contract prices.

This study should be a wake-up call for California voters who will vote in November on a ballot initiative to tax windfall profits by oil companies so the state can develop alternatives to the petroleum economy.”

And there we have the money quote. The FTCR wants to punish the oil companies for making money, and they want to funnel the money to a competing industry. They are using this misleading study to push their political agenda. Now, I am all for alternative energy. I have made that abundantly clear. But the ethanol industry already benefits from very generous subsidies, and the energy they produce is trivial with respect to the size of the subsidy. Yet somehow, the existing subsidies and mandates are still not enough. Shouldn’t that trigger a flag in people’s minds that something is not quite right here with ethanol economics? I would be willing to bet that >90% of the voters don’t understand why there is controversy surrounding the use of grain ethanol as a fuel. I bet the FTCR doesn’t understand the controversy. They think it is a good idea to punish oil companies and they think they know where the money should go.

The person bankrolling this initiative , Vinod Khosla, is a major investor into the industries that would directly benefit if the initiative is passed (3). Doesn’t anyone see a problem with this? Isn’t there a conflict of interest here, which may prevent a much better solution from being enacted? Here is a man who stands to gain millions if he can just convince the voters to punish the oil companies and send that money his way. If you are going to pass a windfall profits tax, why not use the proceeds to give rebates for the purchase of very fuel efficient vehicles? Wouldn’t that be a far wiser use of the money, with immediate benefits?

There is too little personal responsibility here. People can “punish” the oil companies by avoiding long commutes, buying a more fuel efficient vehicle, and reducing unnecessary driving. The FTCR would instead absolve people of their personal responsibility and blame it all on the oil companies. But the reason oil companies are so profitable is that the American public has an insatiable appetite for energy. Shifting money from one industry to another – especially one as inefficient as the production of alcohol from grain – is not the answer. The results will be less money for capital projects, which will lead to fuel shortages and ever higher prices. Didn’t we learn that the last time around?

References

1. New Gasoline Study Shows Profits, Not Crude Oil Prices Or Ethanol, Are Driving Pump Price Spike

2. Why Gasoline Prices are Headed for $3.50 at the Pump

3. “Valley man bankrolls clean-energy initiative.” The Mercury News, April 3, 2006.

April 19, 2006 Posted by | FTCR, gas inventories, Hurricane Katrina, price gouging, Tim Hamilton, Vinod Khosla | 21 Comments