Today's Wall Street Journal has an important front-page article on why oil is at an all-time (non-inflation-adjusted) high even though inventories are at an eight-year high. It's well worth a read.
The short answer is that refining capacity hasn't kept up, and that federal policies are a large part of the problem. Drilling is banned in an important part of Alaska, banned off the Virginia shore even though Virginia seems to want drilling, and banned so far off Florida's shoreline that Floridians themselves should be embarrassed by the amount of ridiculous deference shown to them. And regulations of all sorts have made new refineries for 30 years a losing proposition -- and until last year's largely execrable Energy Bill, which at least had a few good provisions in it, nuclear power was similarly burdened and therefore far too little used. Then, of course, there's this: "Even as crude stockpiles have swelled, U.S. inventories of gasoline have fallen as refiners have shut down operations to perform maintenance and prepare to meet new government-mandated fuel formulas...."
What happened is that first Congress encouraged a product called (I think it is) MTBE, and then ecofreaks started suing because MTBE supposedly leached into the ground water. So then Congress banned MTBE, and then refused to hold MTBE producers harmless for producing the product that Congress itself had encouraged. Then Congress mandated ever-increasing use of ethanol, even in the face of evidence that there may not be enough supply and that the transition to ethanol would require refineries to shut down in order to convert to the new requirements.
In short, this is all Congress' fault. Or if not all, at least mostly. Which is nothing new. Aside from tax cuts on capital gains, Congress hasn't done a darn thing right in about eight years.
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