Cheaper Gasoline Starts at the EPA

The rise of gasoline futures prices is an example of having adequate supplies of gasoline domestically, but in the wrong location.  In gasoline, as in real estate, price is driven by location, location, location.  

The key fact to understand is that futures contracts are written with a clearing mechanism based on a standard amount of a standard product delivered at a specific location on a specific day.  So while speculators can trade contracts like Monopoly money, on contract expiration day, whatever open contracts exist must be settled by physical delivery of the commodity.  In the case of NYMEX gasoline futures contracts, the basic contract calls for the delivery of 42,000 gallons of unleaded gasoline to New York Harbor.

One factor driving up the price is the impending closure of large Northeast refineries due to oppressive EPA regulations unilaterally imposed by Lisa Jackson of Obama's EPA.  Boutique blend requirements for different markets imposes extra costs on refineries and make them less profitable. 

Want to drive gasoline prices down?  Fire Lisa Jackson and impose a six-month moratorium on the EPA regulations hamstringing the market.  Suspend boutique blend requirements and allow a national market in gasoline salable anywhere.  A six-month moratorium was supposed to improve the safety of offshore drilling.  Why wouldn't a six-month moratorium improve the quality of government regulation?  What would we have to lose by merely delaying the new regulations by a mere six months, other than an Obama excuse for ripping off the taxpayers?

Now, if you are a bit more ambitious and confrontational, you could go for the completion of the Keystone XL pipeline.  The spot price for crude oil in Canada is $74 per barrel (one barrel is 42 gallons, so this amounts to $1.76 per gallon).  The spot prices on the Gulf Coast and from Europe are about $122, or roughly $2.90 per gallon.  Does anybody think an alternate source of crude oil at a price $48 less per barrel might help lower and stabilize the price of the gasoline refined from it?  Keystone XL would transport Canadian (and North Dakotan) oil at far less expense than alternative means, such as Warren Buffet's railroad tanker cars, so the combination of larger supply and lower transport costs would exert downward pressure on prices for crude, and ultimately gasoline.

Sunoco's Northeast refineries in and around Philadelphia serve New York, where prices are set, and are threatened with closure.  Canadian tar sands crude oil is quite heavy and viscous, similar to the Venezuelan oil that was a principal input for Sunoco.  Conversion to Canadian crude would both help lower prices, and would poke Hugo Chávez in the eye, supporting our friendly Canadian neighbors instead of a Marxist dictator and ally of Iran.  So the problem is to get Canadian oil to the Sunoco refinery in Philadelphia to save all those high-paying unionized blue-collar jobs.  The path would be south from Alberta, Canada to the Gulf Coast, and thence to Philadelphia by tanker.

Another way to ease the supply situation in New York would be to declare a national emergency and allow exemptions to the Jones Act.  This act limits shipments between United States ports to U.S.-flagged and crewed ships.  You may remember the controversy over using Dutch oil skimmers to contain the oil being spilled from BP's Macondo 252 well.  Temporarily waiving the Act would allow foreign-flagged tankers that now carry American-refined gasoline from Gulf Coast ports to Europe to deliver it to New York instead.  The sudden increase in the supply of gasoline for delivery in New York and not Rotterdam would cause futures prices to drop precipitously.

So the plan is simple: John Boehner and the House Republicans ought to pass a bill imposing the six-month moratorium on EPA regulations and an associated six-month waiver of the Jones Act and see what happens to gasoline futures prices.  The results might delight undecided voters at the gas pump.

(See also: The President's Great Gas Price Spike Media Blitz)

The rise of gasoline futures prices is an example of having adequate supplies of gasoline domestically, but in the wrong location.  In gasoline, as in real estate, price is driven by location, location, location.  

The key fact to understand is that futures contracts are written with a clearing mechanism based on a standard amount of a standard product delivered at a specific location on a specific day.  So while speculators can trade contracts like Monopoly money, on contract expiration day, whatever open contracts exist must be settled by physical delivery of the commodity.  In the case of NYMEX gasoline futures contracts, the basic contract calls for the delivery of 42,000 gallons of unleaded gasoline to New York Harbor.

One factor driving up the price is the impending closure of large Northeast refineries due to oppressive EPA regulations unilaterally imposed by Lisa Jackson of Obama's EPA.  Boutique blend requirements for different markets imposes extra costs on refineries and make them less profitable. 

Want to drive gasoline prices down?  Fire Lisa Jackson and impose a six-month moratorium on the EPA regulations hamstringing the market.  Suspend boutique blend requirements and allow a national market in gasoline salable anywhere.  A six-month moratorium was supposed to improve the safety of offshore drilling.  Why wouldn't a six-month moratorium improve the quality of government regulation?  What would we have to lose by merely delaying the new regulations by a mere six months, other than an Obama excuse for ripping off the taxpayers?

Now, if you are a bit more ambitious and confrontational, you could go for the completion of the Keystone XL pipeline.  The spot price for crude oil in Canada is $74 per barrel (one barrel is 42 gallons, so this amounts to $1.76 per gallon).  The spot prices on the Gulf Coast and from Europe are about $122, or roughly $2.90 per gallon.  Does anybody think an alternate source of crude oil at a price $48 less per barrel might help lower and stabilize the price of the gasoline refined from it?  Keystone XL would transport Canadian (and North Dakotan) oil at far less expense than alternative means, such as Warren Buffet's railroad tanker cars, so the combination of larger supply and lower transport costs would exert downward pressure on prices for crude, and ultimately gasoline.

Sunoco's Northeast refineries in and around Philadelphia serve New York, where prices are set, and are threatened with closure.  Canadian tar sands crude oil is quite heavy and viscous, similar to the Venezuelan oil that was a principal input for Sunoco.  Conversion to Canadian crude would both help lower prices, and would poke Hugo Chávez in the eye, supporting our friendly Canadian neighbors instead of a Marxist dictator and ally of Iran.  So the problem is to get Canadian oil to the Sunoco refinery in Philadelphia to save all those high-paying unionized blue-collar jobs.  The path would be south from Alberta, Canada to the Gulf Coast, and thence to Philadelphia by tanker.

Another way to ease the supply situation in New York would be to declare a national emergency and allow exemptions to the Jones Act.  This act limits shipments between United States ports to U.S.-flagged and crewed ships.  You may remember the controversy over using Dutch oil skimmers to contain the oil being spilled from BP's Macondo 252 well.  Temporarily waiving the Act would allow foreign-flagged tankers that now carry American-refined gasoline from Gulf Coast ports to Europe to deliver it to New York instead.  The sudden increase in the supply of gasoline for delivery in New York and not Rotterdam would cause futures prices to drop precipitously.

So the plan is simple: John Boehner and the House Republicans ought to pass a bill imposing the six-month moratorium on EPA regulations and an associated six-month waiver of the Jones Act and see what happens to gasoline futures prices.  The results might delight undecided voters at the gas pump.

(See also: The President's Great Gas Price Spike Media Blitz)

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