Refined

I got an email from our Representative yesterday touting the fact that the House Republicans have put forth H.R. 3089, The No More Excuses Energy Act. Among other things, the bill would "allow the issuance of tax exempt facility bonds for the financing of domestic use oil refinery facilities." Since this amounts to a subsidy for constructing oil refineries in the US, it is probably at least worth considering if this would have any downward effect on the price of gasoline.

As shown in the chart to the right, there isn't much correlation (coefficient of correlation is 0.05) between the level of refinery utilization and the price of gasoline, at least for the three years of data I could lay my hands on at the EIA.

Another data point is the current profitability of companies that refine oil. Since the price of gasoline is high, they must be making a mint, right? Wrong. Demand for distillates is down as Americans drove 1.4 billion fewer highway miles in April 2008 than in April 2007 earlier, according the Department of Transportation. Since the primary profit driver for a refining company is being able refine as many barrels of oil as possible, the reduced demand is killing them.

Although this analysis is full of holes (what about imported distillates? etc.), it does indicate that the cause of high prices at the pump now is probably not due to a shortage of refining capacity. If I can figure this out with 15 minutes of work, why is the US Congress still trying to subsidize refining? Could it be lobbying influence? Nah.