Thursday, November 10, 2005

Krauthammer's making it easy to ignore him

Sometimes you have to actually read deeply into columns before deciding whether or not you buy the arguments of the author. You have to mull their statements over, google their facts and, you know, think. Not so with Charles Krauthammer's latest. Here are the first two sentences.
Thank God for $3.50 gasoline. True, we had it for only a brief, shining moment, and there is not much good to be said about the catastrophic hurricanes that caused it.
You need read no further.

Look. Oil and gas output was decreased by less than five percent due to Katrina. But look at the chart below (click for a larger image). Right after Katrina hit, gas prices in D.C. jumped from an average $2.75 per gallon to about $3.45 per gallon. That's a jump of about twenty percent. This doesn't even include the fact that prices had jumped from roughly $2 per gallon, where it had hovered for months until about March/April. By the time Katrina hit, therefore, gas prices had steadily risen by 37 percent from March to late August. If you consider that gas seems to be returning to about that level, it's obvious a 5 percent decrease in output can't account for a total 70 percent increase in gas prices.


Of course, it seems obvious to me (and everyone else) that common sense doesn't allow us to marry the concept of a hard-hit, struggling oil industry with huge profits. It just simply doesn't.

If you do bother to read more of Krauthammer's article, you see that he really doesn't have a problem with taxes, per se, but only likes regressive taxes. He's all for taxing gasoline and screwing the middle class commuter types.


Blogger Andy said...

A small decrease in gas supply can easily drive prices through the roof. Think of a plane with ten passangers, but only nine parachutes. The shortage is only 10%, but the remaining parachutes will skyrocket in value if the engines die.

10:54 AM  
Blogger doc said...

The actual percent increase in gasoline prices at the pump is much more than the 70% as almost half of the retail price of gasoline is taxes. Therefore the actual increase was well over 100%

11:04 AM  
Blogger Nitpicker said...


I hear you, but half of the increase occurred before Katrina hit and before any actual shortfalls occurred.

11:14 AM  
Blogger theBhc said...

Indeed, world oil markets had responded to news of the hurricane days before it made landfall. Markets simply do not act in a linear relation to the current production level but function by factoring in fear, speculation, prognostication and innuedo. I have never thought these were great things to use in evaluating stocks and commodities but on Wall Street it is de rigueur. In fact, that what drives a lot of the pricing in financial markets.

Gas prices immediately after Katrina spiked because neither distributors, nor anyone else, had any idea what the extent of the damage actually and would not know until many days later. The spiking had little to do with actual production loss.

3:54 PM  
Blogger theBhc said...

World oil markets are pricing oil futures at $60+ bbl not because that is what it will cost to make in the near future but because supply is uncertain and may either drop or not increase because of a destabilised Iraq and Saudi oil fields which are in decline.

4:05 PM  

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