Asphalt (called bitumen outside the United States), like gasoline, is produced by distilling specific grades of petroleum. Mostly the thickest stuff at the bottom of the barrel hence the title of my post. It’s a gross over-simplification but you get asphalt by scraping the bottom of the barrel, taking that stuff, and distilling it into asphalt.
Generally speaking, the price of asphalt varies with the price of oil so when oil prices skyrocketed this summer so did the price of asphalt. This has been further aggravated by new processes that have allowed producers to get gasoline from the stuff that used to be mostly good for making asphalt. Consequently, the converse is true, too. As the price of asphalt rises producers will use more of the stuff from the bottom of the barrel for making that and less for making gasoline.
I’ve made no secret of my skepticism about the fiscal stimulus packages being talked about these days particularly when they’re defined as building or repairing roads and bridges. There are many reasons for my skepticism including that I don’t believe there are enough worthwhile shovel-ready projects to have enough stimulative effect fast enough to do what needs doing with the economy, the reality that today’s construction jobs aren’t as unskilled as they used to be and, consequently, they won’t create nearly as many jobs as the exponents of these projects imagine, and that our way of life is likely to change enough in the fairly near future that the useful lives of the roads and bridges built won’t be nearly as long as, say, the useful lives of roads and bridges built in 1960 were.
Here’s another reason to think twice about these projects. The United States and China’s both trying to stimulate their economies with big infrastructure projects (defined as building roads and bridges) at the same time will raise the price of asphalt and/or the availability of asphalt will be a limiting factor in how quickly these projects can be implemented, that will in turn raise the price of gasoline, and that may well reduce whatever benefit might be seen from these projects. See, for example, James Hamilton’s observations on the role of rising oil prices in our current economic downturn.
Additionally, we have other reasons for not wanting the price of oil to go back up again.