Regulation in the US has raised the cost of making gasoline. It has created distribution bottlenecks. It has necessitated new seasonal turnover of inventory.
Demand for gasoline, meanwhile, is rising. And the price of crude oil shows no less inclination to fluctuate now than ever.
So why is it difficult for politicians to understand change in the retail price of gasoline?
Sen. Carl Levin (D-Mich.) did nothing to demystify this not-so-mysterious subject during hearings this week of the Senate's Permanent Subcommittee on Investigations, which he chairs.
The title of an underlying subcommittee report sets the tone: "Gas Prices: How Are They Really Set?"
This should not be a question.
Gasoline prices are "set" by the decisions of sellers-each trying to maximize profit-and of buyers-each trying to minimize cost.
Somehow alarmed that prices periodically rise within this dynamic, Levin ordered up a study that noticed increasing concentration of refinery ownership and instances of business people wishing their competition would go away.
From these banal observations the study concludes that refiners in some parts of the country have the ability to make gasoline prices jump by limiting supply.
"That's the major problem, as I see it," Levin said while brushing aside regulatory costs and never wondering why prices fall as frequently as they rise.
His study detects phenomena such as the tendency of prices of competing suppliers to track one another and makes them sound very suspicious.
Yet these things happen in a market. Sellers do decide what prices to ask. Their decisions do balance the basic revenue factors of price and volume. They do account for the actions of competitors. And they do lead to economic judgments about volumes to offer for sale.
None of it justifies Levin's inquisition and the baseless suspicion on which it feeds.
Politicians truly concerned about the economics of gasoline would pay close attention to regulatory costs plaguing refiners-and driving some out of business.
And they'd reject mandates for ethanol in vehicle fuel.
Somebody needs to ask Levin where he stands on that issue.
(Online May 3, 2002; author's e-mail: [email protected])