Minor Thoughts from me to you

This is exciting news.

U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world's biggest producer.

Driven by high prices and new drilling methods, U.S. production of crude and other liquid hydrocarbons is on track to rise 7 percent this year to an average of 10.9 million barrels per day. This will be the fourth straight year of crude increases and the biggest single-year gain since 1951.

The boom has surprised even the experts.

"Five years ago, if I or anyone had predicted today's production growth, people would have thought we were crazy," says Jim Burkhard, head of oil markets research at IHS CERA, an energy consulting firm.

The Energy Department forecasts that U.S. production of crude and other liquid hydrocarbons, which includes biofuels, will average 11.4 million barrels per day next year. That would be a record for the U.S. and just below Saudi Arabia's output of 11.6 million barrels. Citibank forecasts U.S. production could reach 13 million to 15 million barrels per day by 2020, helping to make North America "the new Middle East."

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There are a couple of things that I really wish the general public would understand. One is that gas prices (and oil prices) aren't, broadly speaking, under the control of any President. No President gets to take credit for prices falling and no President should take the blame for prices rising.

Is President Obama responsible for spiraling price of gasoline? Republicans say yes, but the facts say no.

Why have gasoline prices increased since the start of the year? The simplest explanation is that the price of crude oil has increased. Specifically, the spot price for Brent (North Sea) crude has increased $16 a barrel since January. Given that there are 42 gallons to a barrel, that works out to a 38 cent increase in the price of a gallon of oil. Spot prices for gasoline trade in New York have increased about 41 cents per gallon over the same time frame. So there you go.

Why is the price of North Sea oil relevant to the price of gasoline in the United States? Well, we import gasoline refined in Europe from North Sea crude. Even though these imports constitute less than 10 percent of U.S. gasoline consumption, they are necessary to satisfy domestic demand and their price sets the market price for all gasoline regardless of whether other cheaper crude sources are used to refine most of our gasoline.

You can also listen to the podcast version of this article.

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I mentioned last week that the recent rise in gasoline prices was most likely linked to the recent sanctions on Iran. Apparently, the sanctions were expressly designed to avoid an increase in gas prices.

U.S. sanctions, set out in Section 1245 of the National Defense Authorisation Act for Fiscal 2012 (HR 1540), apply only if the president determines “the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers . . . to reduce significantly in volume their purchases from Iran”.

Sanctions do not apply if the president determines an importer has “significantly reduced” its volume of crude purchases from Iran, and the president can waive them altogether if it is in the national interest.

The law mandates experts at the Energy Information Administration (EIA), in conjunction with the departments of Treasury and State and the head of the intelligence community, to review the availability of alternative supplies every 60 days. [Emphasis added.]

So, what went wrong? Here's Sheldon Richman, with two of my favorite economics quotes.

The “experts” don’t know what they’re doing. They may think they do. They surely want us to think that. But they’ve got a problem: The matter they are grappling with does not permit the kind of knowledge they would need to design a plan calibrated to produce the results they seek. They’re up to their eyebrows in data, but what they need more than data they haven’t got, and there’s no way to get it.

The Problem Is People

Rube Goldberg had it easy. He had only to arrange a series of inanimate objects and an occasional parrot to create his problem-solving devices. The expert who tries to calibrate sanctions to harm only Iran, but not oil consumers, have to deal with people. He seems, Adam Smith wrote in The Theory of Moral Sentiments,

to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chose to impress upon it.

F. A. Hayek had something similar in mind in his 1974 Nobel lecture, [“The Pretence of Knowledge”][4]: “[I]n the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process . . . will hardly ever be fully known or measurable.”

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Richard Epstein looks at the recent run up in gas prices and concludes that it's mostly because of an increasingly hostile posture towards Iran.

Without question, the problem can be traced back to a renegade Iran. For good and sufficient political reasons, the West has come to see that the Iranian nuclear threat is not just bluster. Indeed, it poses far greater risks to world peace and the political order than even a major disruption in oil supplies.

Hence an anxious West has now put into place a reasonably effective concerted effort to cut off Iran from the world’s banking system, and to block the use of Iranian oil internationally, which has been made easier by the Saudis’ willingness to expand their own shipments into the world markets. Nor have the Iranians sat back idly. They have cut off exports to the United Kingdom and France, a move that is largely symbolic. But the Iranian threat to close the Strait of Hormuz, through which about one-third the world’s oil supplies travel, is not symbolic. Nor is the movement of the U.S. aircraft carrier, the U.S.S. Abraham Lincoln, into the Strait of Hormuz, merely symbolic.

For both the short and the middle term, these developments have driven the base-line price of Brent crude from the North Sea up to around $119 per barrel. That translates into a potential price at the pump of about $4.25 per gallon, which undoubtedly will eat into the pocketbooks of many Americans.

He concludes that the worst possible thing, for gas prices, is for politicians to start looking for "something to do". (And, yes, he criticizes both Democrats and Republicans on this issue.) Rather, we should sit back and let individuals and companies figure out the best way to react to the increased risk and the possibility of sudden shortages.

The question on the table is how best to respond to the disruptions in oil supplies, not to pretend that these disruptions do not exist. On this score, the great advantage of a market system is that it forces Mr. Coudle (and everyone else) to think hard about the relative value of the goods and services he consumes and to make cutbacks in a cheap and rational fashion. In both good times and bad, people are always having to decide which goods and services to spend their incomes on, and which to forego.

Price movements give them an accurate, instantaneous, and impersonal picture of how other people value various goods and services. When oil prices rise, its least valuable uses are the first to drop out of the system. The decisions are typically made on a continuous basis, so that if some people find that they have cut back purchases by too much (or too little), they can increase (or decrease) their purchases in the next pricing period. Spurred on by these price increases, people can also make changes in their spending patterns elsewhere to offset the inconvenience of the higher prices for oil products. Purchasing a hybrid, insulating your home, and moving closer to work are just some of the many ways to save money. Good luck to Mr. Coudle, who provides an object lesson in how that task should be done.

The great risk is that the government will undermine the market by resorting to centralized devices to cap the price increases or to dictate its collective vision of the just price. Now is the time to recall the lessons of Friedrich Hayek’s best writing, the scholarly essay “The Use of Knowledge in Society” (1945), which is about the superiority of a decentralized price mechanism in response to system-wide shocks. As he reminds us, “The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all separate individuals possess.”

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I knew things were getting better, but this is unexpected.

The United States' rapidly declining crude oil supply has made a stunning about-face, shredding federal oil projections and putting energy independence in sight of some analyst forecasts.

After declining to levels not seen since the 1940s, U.S. crude production began rising again in 2009. Drilling rigs have rushed into the nation's oil fields, suggesting a surge in domestic crude is on the horizon.

... By the EIA's forecast, the United States will challenge Saudi Arabia as the world's top oil producer when crude and other forms of liquid petroleum are included. But the U.S. is also the world's top oil consumer, demanding nearly 20 million barrels a day. So even with an oil boom, the nation still falls far short of its energy demands.

I'd love to challenge Saudi Arabia as the world's top oil producer. I'd love to weaken the power of those terrorist sponsoring, women abusing cowards.

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I knew that the energy situation in the U.S. had been improving but I didn't realize that it was already this good.

To be sure, part of the reason for this change is that demand for energy in the U.S. is down in the sluggish aftermath of the Great Recession, while demand for energy in other parts of the world is rising. For example, the U.S. is now a net exporter of oil to Brazil, Mexico, Argentina. While exports and imports will bounce around in the short-run, over the longer run it appears that the U.S. is on track to become an energy exporter of oil, coal, and even natural gas (as technology improves for shipping liquified natural gas).

I look forward to the day when the U.S. becomes a net exporter of oil to Venezuela. Given how badly Chavez is mismanaging things, that may not take as long as you'd think.

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Jerry Pournelle, on foreign policy.

Iraq is another story. We’re pulling out. We have spent $Trillions, we have left chaos, we have removed a major threat to the stability of Iran, and I am not sure what we got out of it. And Iraq certainly does have stuff we want. Oil, to begin with. A fair amount of Yellowcake – uranium ore. Lots of other stuff. And we’re running out because the Iraqis insist on applying Iraqi “law and order” to the US forces in Iraq.

I’d be tempted give them a $3 Trillion bill on the way out, and leave an occupation force in one of their major oil fields where we’d be pumping oil and selling it until most of the bill was paid, but that option was apparently never considered. Incidentally, we could defend our occupied oil fields with Sudanese and for that matter Libyan mercenaries, which we pay for out of the oil proceeds.We wouldn’t need a large US force in Iraq; they could be in Kuwait . Pumping lots of Iraqi oil would drop the world price of crude, and be a great jobs program for the United States.

... I don’t much like Empire as a policy, but if we are going to play Empire, can’t we find someone who knows how to do it competently?

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The Munchkin Wrangler had a great rant recently.

You know what I can’t stand to hear about anymore? That we Americans are addicted to oil. It’s a smarmy term that tries to couch an economic and environmental argument in pathological terms.

I’m not addicted to oil. I’m addicted to being able to drive into town on my own schedule. I’m addicted to being able to haul home a week’s worth of groceries with two little kids in tow without having to wait for the fucking bus with eighty pounds of filled plastic bags in my hands. (That’s disregarding the fact that I live out in the sticks, and the nearest bus stop is four miles away, which is one hell of a hike with the aforementioned two little kids and week’s worth of groceries.)

...

Until then, shut the fuck up about my addiction to oil. It does nobody any good to try and debate economic and logistical necessities while using terminology to imply people who disagree with your view are mentally ill.

On a related note, I get frustrated whenever I hear someone say that buying oil is bad for the U.S. economy. For instance:

That’s money taken out of our economy and sent to foreign nations, and it will continue to drain the life from our economy for as long as we fail to stop the bleeding.

Really? That money is just taken out of our economy? And we get nothing from it? And it "drains the life from our economy"? Foreign oil is the vampire that's sucking our economy dry? Really?

I get quite a lot out of foreign oil. For instance, the ability to drive to work every day. I don't know about you, but that does quite a lot for my personal economy. I get to have plastics that keep my food fresh and uncontaminated—keeping me healthy. I get to have UPS delivery trucks that bring me products—saving me multiple trips to the store each week.

I’ll tell you what: I get far more benefits from foreign oil than I pay in costs. The cost of foreign oil is dirt cheap. Far from draining the life from our economy, oil pumps life into our economy each and every day.

Roughly half of our oil imports come from politically unstable Middle Eastern nations.

By increasing U.S. oil production (from off shore drilling, from natural gas fields, and from shale oil fields) we could cut our oil imports roughly in half.

By using U.S. resources, and creating U.S. jobs, we could end our dependence on oil imported from unstable, risky regimes. What's not to like? Why is this such a hard thing to approve?

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Michael Lynch, the former director for Asian energy and security at the Center for International Studies at the Massachusetts Institute of Technology, debunks some of the claims surrounding peak oil, in an op-ed at the New York Times. Here's a few of the highlights:

On the claim that oil companies are extracting increasing amounts of water instead of oil:

But this is hardly a concern -- the buildup is caused by the Saudis pumping seawater into the field to keep pressure up and make extraction easier. The global average for water in oil field yields is estimated to be as high as 75 percent.

On the claim that we're only discovering one new barrel of oil for every 3 or 4 that we pump:

When a new field is found, it is given a size estimate that indicates how much is thought to be recoverable at that point in time. But as years pass, the estimate is almost always revised upward, either because more pockets of oil are found in the field or because new technology makes it possible to extract oil that was previously unreachable. Yet because petroleum geologists don't report that additional recoverable oil as "newly discovered," the peak oil advocates tend to ignore it. In truth, the combination of new discoveries and revisions to size estimates of older fields has been keeping pace with production for many years.

Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent -- another 2.5 trillion barrels -- in an economically viable way.

I've heard before that shale oil was energy intensive. In fact, that's the most frequent criticism I've heard. But I had no idea it was this energy intensive:

Environmental groups such as the Natural Resources Defense Council have called oil shale one of the planet's dirtiest fuels. It can be converted into liquid petroleum, but only after being heated to 900 degrees Fahrenheit for five years or more, so production requires massive quantities of energy, the council says.

Wow. No wonder it's only worth pumping if oil is over $70 a barrel.

The Wall Street Journal correctly skewers T. Boone Pickens today:

Boone Pickens may be a fine man, and has played a colorful and useful role on the American stage for decades. But his "energy plan," which he's spending a fortune to promote on cable TV, is not a plan.

Asserting that something would be good to do is not "a plan." Saying how to do it is "a plan." By this standard, what the legendary oil man is devoting $58 million to pitch hardly amounts to a decent slogan.

He would replace natural gas in electricity production with wind, and use the natural gas to power cars. He fails to mention any practical theory of how to get there -- that would really be "a plan." Instead, he relies on the deus ex machina of Congress, waving a legislative wand to make people do things they would choose not to do, given the extravagant and unjustified costs involved.

Having reasons is not "a plan" either, but Mr. Pickens has his reasons. He says we spend $700 billion a year on foreign oil, which he calls a "transfer of wealth." But exchanging money for oil at the market price is an exchange of things of equal value. If we didn't value their oil more than our dollars, we wouldn't participate in such a bargain.

He laments that the U.S. consumes "25% of the world's oil." The phraseology is common, and misleading. Oil is produced to meet demand. He might as well complain that, with 25% of the world's GDP, we consume 25% of the world's advertising.

That "transfer of wealth" comment has been bugging me since I first saw it. It's such a stupid comment to make. It makes me wonder if a man of his skills and wealth is really that stupid or if he just thinks we are?

Whichever it is, I'm glad to see someone calling him on it.

As I've mentioned in the past, I enjoy reading a few economics blogs. Lately, oil prices have been a hot topic -- why are they high?, are they too high?, are they too low?, are speculators driving up the price, etc. It's been a fascinating discussion.

Yesterday, Arnold Kling suggested that it's more likely that oil prices were too low last year than that oil prices are too high this year. In other words, we're not in an "oil bubble" created by evil speculators.

Early in 2007, the price of oil was $60 a barrel. Recently, it has been above $130 a barrel. Which of the following does Paul Krugman believe:

(a) market fundamentals justified $60 a barrel then, and they justify $130 a barrel now; or

(b) market fundamentals justified a much higher price in 2007?

I believe that (b) is more likely to be true, meaning that we had what Tyler Cowen calls an "anti-bubble" in oil.

(Via EconLog.)

I don't know if he's right or not, but I suspect he could be. I don't think demand has gone up that much between this year and last year. Maybe people are just now realizing how fundamentally the Indian and Chinese demand for energy is going to change the world?

How to relieve poverty in oil-rich third-world countries.

1. Invade and take over the oil wells
2. Give control of the oil wells to private corporations
3. The government -- deprived of easy oil money to buy elections and support -- will begin to govern better

It's crazy, but it just might work.

Do you wonder why gas has been so expensive this summer? Wonder no more. Gas Prices Rise on Refineries' Record Failures - New York Times

Oil refineries across the country have been plagued by a record number of fires, power failures, leaks, spills and breakdowns this year, causing dozens of them to shut down temporarily or trim production. The disruptions are helping to drive gasoline prices to highs not seen since last summer's records.

These mechanical breakdowns, which one analyst likened to an "invisible hurricane," have created a bottleneck in domestic energy supplies, helping to push up gasoline prices 50 cents this year to well above $3 a gallon. A third of the country's 150 refineries have reported disruptions to their operations since the beginning of the year, a record according to analysts.

There have been blazes at refineries in Louisiana, Texas, Indiana and California, some of them caused by lightning strikes. Plants have suffered power losses that disrupted operations; a midsize refinery in Kansas was flooded by torrential rains last month.

American refiners are running roughly 5 percent below their normal levels at this time of the year.

Many factors have led to the rise in gas prices, including disruptions in oil supplies from places like Nigeria and Norway. But analysts say the refining bottleneck in North America has been one of the main drivers of higher energy prices this year.

The refining crunch has pushed wholesale gasoline prices up 35 percent this year and has contributed to a 23 percent gain for crude oil prices. Oil futures in New York closed at $75.57 a barrel on Friday.

The solution: build more refineries. Increase capacity. The problem: Congress.

Meanwhile, refiners have been scrambling to meet a raft of environmental regulations, phase out toxic additives, add ethanol to the fuel mix and introduce new ultralow sulfur standards for gasoline and diesel. Industry insiders attribute much of the fragility of refining operations to the difficulty of making these cleaner fuels.

No refineries have been built in the United States in over three decades, because refiners say they are too costly. Instead, they have been expanding their existing refineries.

But with a third summer of high gasoline prices, lawmakers are debating legislation they claim would punish oil companies for exploiting the tight supply situation and engaging in "price gouging." At the same time, they are pressing refiners to produce more fuel.

New refineries are super expensive. Companies would need to amass a large stockpile of cash -- earned from large profits -- before they would be willing to build a new refinery. But Congress keeps threatening to impose a windfall profits tax on the industry. Whose going to invest in a new refinery when your income could disappear at any time, courtesy of the U.S. Congress?

Note also, the mandates for new fuel mixes. It's hard to keep a refinery running when Congress and state governments mandate ever more exotic fuel mixtures. Each new gasoline blend makes the entire refining process a little more fragile. That leads to breakdowns and higher prices.

Once again, blame Congress for high gas prices. Don't let them trick you into blaming the oil companies.

GasBuddy has a nifty map of gasoline prices by county. I imagine that ease of transportation explains part of the price differences. However, I think that most of the difference is explained by differences in state taxes and EPA regulations.

Keep this map in mind the next time you're tempted to blame oil companies for expensive gas.

Hold on to your wallets -- the Senate is in session. Senators Grassley and Baucus plan to make your gasoline even more expensive.

A proposal to hit oil companies with $29 billion in new taxes advanced in the Senate on Tuesday, targeting the money to energy conservation, wind turbines, electric hybrid cars and clean coal technology.

The massive tax package, double what Democrats had discussed as recently as last week, is "designed to promote clean and sustainable energy," said Sen. Max Baucus, D-Mont., chairman of the Finance Committee that approved the measure by a 15-5 vote.

It is expected later this week to be added to energy legislation being considered by the full Senate.

It gets worse.

The American Petroleum Institute, the oil company trade group, said in a statement that the taxes "will discourage new domestic production, discourage new investments in refinery capacity and would lead to the loss of good-paying U.S. jobs."

As I wrote previously, Congress has been discouraging investments in refinery capacity for decades. Our already limited refinery capacity is largely responsible for the current high price of gasoline. We should be doing everything in our power to increase refinery capacity -- not decrease it more.

Baucus said he expects the oil companies to complain, but he doesn't believe the taxes "will substantially change these companies' incentives to produce energy."

Maybe not. But it will substantially change the price that these companies charge to consumers. Senator Grassley doesn't realize that -- maybe he's been smoking something green?

Grassley said the "narrow change" in tax policy "seems likely to have little if any effect on domestic production" or the price of gasoline at the pump.

Uh-huh. Raising taxes by $29 billion will have "little if any effect" on prices. How long has he been out of touch with reality? Also, does he have any plans to return to reality?

How expensive could this all get? The Heritage Foundation did some quick research and put together a state by state analysis for you. Living in Wisconsin, I could see prices rise from $3.29 a gallon (May price) to $3.60 a gallon next summer. By 2016, gasoline could rise as high as $6.62 a gallon. To Senators Grassley and Baucus: "Thanks a lot. I didn't really need that extra $113 in my monthly budget anyway."

As if this wasn't bad enough, Congress would like to make your car more dangerous.

Despite Congress' repeated efforts to repeal the laws of physics in favor of something more politically correct, the fact remains that bigger is safer when it comes to vehicle size. Supporters of increasing Corporate Average Fuel Economy (CAFE) standards ignore what millions of minivan and SUV drivers already know: They stand a much better chance of surviving an accident than drivers of lighter, more fuel-efficient subcompacts. The problem is that significantly improving fuel economy means cutting average vehicle weight. The curb weight of a typical family sedan can be reduced from the present 3,200 pounds to, say, 2,800 pounds. But maintaining the same level of safety with advanced air bags, refined crush zones and other technological fixes could make the lighter family sedan unaffordable for middle-class buyers.

Advocates of higher CAFE standards claim that the smaller vehicles will pollute the air less and consume fewer natural resources. As a result, from a global perspective, such vehicles will do less damage to the environment and fewer people will die or get sick as a result of emissions-related causes. But most Americans with families to transport and businesses to move see a much more immediate and concrete health and safety benefit in driving vehicles that serve their purposes without putting at risk their lives and those of their loved ones. Only through force and coercion will they trade their practical vehicles for the smaller, less useful and often more expensive "green" vehicles favored by higher CAFE advocates.

The land of the free -- she ain't quite what she used to be.

The Times is surprised to learn that the recent emphasis on biofuels is making our gas more expensive.

In hearings before Congress last year, oil executives outlined plans to increase fuel production by expanding existing refineries. Those plans would add capacity of 1.6 million to 1.8 million barrels a day over the next five years, for an increase of 10 percent, according to the National Petrochemical and Refiners Association.

But those plans have since been scaled back to more than one million barrels a day, according to the Energy Information Administration, an arm of the federal government.

"If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining," said John D. Hofmeister, the president of the Shell Oil Company. "Industrywide, this will have an impact."

The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth "will do little to accelerate desperately needed investment in complex United States refining units."

"Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely."

The oil companies say their views on the longer-term prospects for fuel reflect simple economics. Because of the enormous investments required to expand refineries, they say they have no other choice but to re-examine their plans in light of the calls for more ethanol fuel, regardless of how realistic they may be.

Not that any of this matters to Congress. Now that they've injected a huge dose of uncertainty into the gasoline market and driven prices sharply upwards, they're prepared to tax away any profits that might enable the oil companies to actually handle the market uncertainty. (High profits might give the companies enough of a margin to both invest in refinery capacity and invest in ethanol production. Unfortunately, profits are evil so we can't let that happen.)

Let's not forget the other place that oil industry revenues have been going:

The refining industry has also spent vast amounts "” more than $50 billion in the last 10 years "” to meet requirements to produce cleaner fuels, according to the American Petroleum Institute, the industry's main trade group.

That's a lot of money. And Congress could mandate something else in the future that will cost just as much -- or more. These are the risks that oil industry executives have to face every day of every year. When uncertainty about future expenses goes up, so do prices.

In case you think that everything will be solved if we just move from corn based ethanal to cellulosic ethanol, not so quick:

The economics of cellulosic ethanol, made from nonfood crops and agricultural waste, are also unclear. Since cellulosic ethanol, still at an experimental stage, is twice as expensive as corn-based ethanol, there are currently no commercial-scale cellulosic plants.

In addition, Mr. Goldstein said, an emphasis on ethanol might lead to increased volatility in fuel prices.

"If we get a bad corn crop, we will end up paying for it at the pump and on the food shelves," he said. "We are not buying security. We are increasing volatility."

While Congress was busy thinking about reducing our dependence on foreign oil, they forgot to think about reducing our dependence on fickle weather patterns. When was the last time that the entire nation had to worry about whether or not the farmers would have a bumper crop of corn? Thanks to Congress, we'll be able to experience this old-fashioned form of worry all over again.

Rather than blaming the oil industry for high gas prices, Congress needs to take a long hard look at their own behavior. Then stop it.

Edmund Andrews has a nice op-ed in the New York Times. He talks about the recent rise in gasoline prices and the claims that oil companies and station owners are gouging consumers. As usual, it turns out that your federal government is the culprit, not the savior.

The Energy Information Administration is predicting that crude oil prices will average about $66 a barrel this summer, versus $70 last summer. But it predicts that gasoline will average about $2.95 a gallon this summer, up from an average of $2.84 last summer.

INDUSTRY executives say the anomaly reflects a temporary drop-off in refinery activity, partly because of scheduled maintenance and partly because of unscheduled interruptions. On top of that come ethanol prices, which have soared, because refiners now blend a small percentage of ethanol into standard gasoline.

Why is the price of ethanol soaring? Why is a small amount of ethanol blended into each gallon of standard gasoline? Congress mandated it, of course! Be sure to thank them the next time you fill up.

The broader issue is that refinery capacity has not kept up with American demand for gasoline. Oil companies, caught with vast amounts of excess refining capacity in the early 1980s, systematically reduced capacity during the long lean years when energy prices and profit margins were the pity of Wall Street.

In theory, the allure of fat profits will attract heavy investment in more refinery capacity. And John Felmy, chief economist at the American Petroleum Institute, told reporters last week that oil companies have indeed been investing heavily in recent years.

In theory, yes. But your Federal government is threatening those investments:

But Congress could face an entirely new quandary in its desire to expand the use of renewable fuels. President Bush has called for producing 35 billion gallons a year of alternative fuels "” from cellulosic ethanol to coal-based diesel "” by 2017. Congressional Democrats might be even more aggressive.

If that's the plan, will oil companies want to invest in more refineries? "You've got to ask whether the demand will be there," Mr. Felmy said.

It's time to tell Congress to quit mucking about with the nation's energy supply. And, if they do insist on mucking around with it, to quit blaming the oil companies for the results of Congress's decisions. Once again, we see that our Congress is about as dignified as a class of first graders. And has about the same sense of responsibility.

Instead of using our oil ourselves, we may soon be watching Cuba use them on behalf of China and India. Does something about that sound wrong? It sure does to me.

We can do something about the potential encroachment on our oil fields by lifting the bans on off-shore drilling and increasing the domestic production of oil and natural gas. The Times notes that we could become self-sufficient for energy for the next generation just on the known oil and gas reserves off our shores, and that does not count the ANWR preserve. The commodities market for oil would deflate with the US running on its own energy production, greatly reducing the revenue to potentially dangerous regimes. At the least, we can shed our trade with Venezuela and the Middle East, focusing on imports from Canada and Mexico instead, and extending the life of our reserves in the process. That would send a message that we have the will to reach self-sufficiency as well as remind some regimes how much they rely on American petrodollars and the inflated price of oil for survival.

Instead of providing for our own needs -- thus lessening our dependence on Venezualen oil and Iranian oil -- we're content to "protect the environment" and ignore our energy needs. While I have my (large) differences with the Republicans in Washington, the Democrats increasingly seem to be bent on stupidity.

Instead, we will probably continue to dream up conspiracy theories about greedy oil companies which have few investment choices, given the restrictions on drilling and refining that the US has imposed on the domestic industry. And while we travel through the fascination of paranoia, we will allow our economic and military rivals to steal our reserves out from underneath us -- literally -- and pretend that their drilling somehow doesn't carry the same environmental problems as our drilling would.

(A tip o' the hat to Captain Ed. The analysis is his, I'm just passing it along.)