Pres. Bush says he will dip into the strategic petroleum reserve, but to what end? There is no shortage of crude oil on the market, and we do not lack the ability to get oil out of the ground or off of a ship. Rather, our limitations lie in our ability to refine the various formulations of gasoline that, in their infinite wisdom, the EPA and the environmentalists have deemed necessary.

There are a lot of people comparing the current pending shortage to the OPEC-induced oil crisis of the 1970s, but this is patently wrong. The current shortage is a refinery problem, not an oil-in-the-tanker problem. Others are suggesting that Bush impose price caps - after all so did another Republican, Richard Nixon - but this isn't the easy answer it appears to be (although it might be politically expedient).

I have people on the ground in Powder Springs where the next few days of gasoline supply for Atlanta will be coming from. I am trying to get in touch with them and find out what is going on. After the supply in the tanker field runs out, what then for 4 million plus people in Atlanta?

Over at Heavy Lifting I posted this picture a few days ago:

What do we see in this picture? Artificial constraints on the gasoline market which, when the nation faces severe shortages of refinery capacty, make very little sense. Reformulated gasoline, as a policy, is a luxury good that is easier ot pay for when the price of gasoline/oil is relatively low and the refinery capacity constraints do not bind. Now that we have binding refinery capacity constraints, the reformulation rules make no sense and should be suspended indefinitely.

While releasing the SPR might be a good political move, it will likely do little to the price of gasoline. Why? Released SPR doesn't help us with our refinery capacity. Lowering or suspending state fuel taxes will do nothing for the supply side of the market and will only slide us down the demand curve - greater quantity demanded with no increase in the quantity supplied will lead to greater pressures on price. Again, lowering state and federal fuel taxes doesn't help us with the refinery capacity.

A policy with a reasonably good chance of success would be for the president to pass an executive order suspending, indefinitely, the restrictions (in as much as possible) on transporting fuel across the reformulation boundries. I bet the folks in Atlanta would rather be able to drive with the gasoline approved for Dallas or Louisville instead of not being able to drive at all because of reformulated gasoline requirements. How about the folks in Denver, Seattle, Nashville, and so forth?

Allowing supply to adjust across state and city boundaries within the confines of the refinery capacity constraints is an easy to implement policy and would likely ease price increases. Reducing the number of different reformulations that must be created by the refineries seems a natural policy option - one much more likely to allow the market to adjust to Katrina than dipping into the SPR. Why is this policy option not even mentioned?

BTW, I seem to have been the only economist I know that took the time to fill up both of my vehicles on Sunday afternoon/evening. The Golf got 87 octane at $2.55 and the Benz got high-test at $2.75. Today, the Golf was refilled (4.3 gallons) for $2.89 per gallon and high-test running at $3.09 (Benz won't be due a refill for a month or so). I reckon I saved about $7.00 between the two vehicles - perhaps I value my time too high.

Update: Colonial pipeline announces it might be up and running in a couple of days. more here

Update: A little surfing on Google provided information on H.R. 1459 and H.R. 1493, introduced by Rep. Roy Blunt [R-MO] titled "To amend the Clean Air Act to reduce the proliferation of boutique fuels, and for other purposes."

From the text of the bill, now languishing (from what I can tell), in the Subcommittee on Energy and Air Quality:

...the Administrator under clause (i)
13 of this subparagraph if, after consultation with, and con-
14 currence by, the Secretary of Energy, the Administrator
15 determines that--
16 ``(I) extreme and unusual fuel or fuel additive
17 supply circumstances exist in a State or region of
18 the Nation which prevent the distribution of an ade-
19 quate supply of the fuel or fuel additive to con-
20 sumers;
21 ``(II) such extreme and unusual fuel and fuel
22 additive supply circumstances are the result of a
23 natural disaster, an Act of God, a pipeline or refin-
24 ery equipment failure, or another event that could
25 not reasonably have been foreseen or prevented and
26 not the lack of prudent planning on the part of the

3
1 suppliers of the fuel or fuel additive to such State
2 or region; and
3 ``(III) it is in the public interest to grant the
4 waiver (for example, when a waiver is necessary to
5 meet projected temporary shortfalls in the supply of
6 the fuel or fuel additive in a State or region of the
7 Nation which cannot otherwise be compensated for).

The rest of the bill goes on to water these waivers down, but does provide language for a study on boutique fuels. I give it up to Rep. Blunt for his foresight.

Perhaps there are a few people in Congress that are proactive after all.