Neither the President Nor the Congress Nor the Big Refiners Nor the Oil Companies Control the Price of Oil

The editors of the Wall Street Journal are unhappy about President Biden’s expressed view on oil prices:

Business leaders have chalked up President Biden’s attacks on oil companies to political cynicism, but maybe they’re too generous. His tweet over the weekend ordering gas stations to lower prices betrayed a willful ignorance about the private economy.

“My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril,” Mr. Biden tweeted Saturday. “Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.” Had Donald Trump issued such a command as President, the left would have cried “authoritarian.”

It’s embarrassing for the leader of the free world to sound like he’s channeling Hugo Chávez. A Chinese state media flack praised Mr. Biden’s tweet: “Now US President finally realized that capitalism is all about exploitation. He didn’t believe this before.” Or maybe he did, and nobody wanted to believe it.

You’d think that the President’s Ivy League-educated economic advisers would have informed him that large refiners own fewer than 5% of all gas stations in America. More than 60% are operated by an individual or family that owns a single store, and the rest are independently owned chains or grocery stores that sell fuel. Many license brands from refiners.

Refiners largely exited the retail business in the 2000s because of thin profit margins. The Energy Information Administration says distribution and marketing made up about 5% of the price of gasoline in May, or about 22 cents a gallon. This covers the cost of freight, labor, utilities, real estate and credit-card fees (which can average more than 10 cents a gallon).

Most gas stations make a few cents a gallon in profit and stay in business mainly by selling food and cigarettes. The National Association of Convenience Stores says its members are struggling amid high gas prices because customers are making fewer stops and buying less.

More than a quarter of gas stations have closed since the 1990s because they couldn’t make the economics work. If retailers were to sell fuel at cost, most would go out of business. Perhaps those owned by large refiners would survive, but they’d be accused of predatory pricing by Mr. Biden’s antitrust cops.

The President’s economic ignorance isn’t a one-off. In recent months he has accused oil and gas companies of price gouging and demanded that they increase production even while his Administration threatens to put them out of business. Mr. Biden doesn’t understand that businesses make long-term decisions based on demand expectations and policy signals. Jeff Bezos called the President’s weekend tweet “either straight ahead misdirection or a deep misunderstanding of basic market dynamics.” They aren’t mutually exclusive.

I post on this because it connects so neatly with a conversation going on in comments.

For a briefing on convenience service stations, read this at the National Association of Convenience Stores, the trade association of convenience and retail fueling stores. Tight margins are very typical of retailers at all levels these days. 2 cents a gallon is pretty tight. That’s about 30 cents per vend.

The margin for refiners is better—it’s a bit less than $1 per gallon (“margin” defined as the price of gasoline less the price of the oil used to make it). That’s got to cover labor costs, maintenance of facilities, amortization of facilities, financing, etc.

The Federal Reserve Bank of Dallas broke down gas prices like this:

They comment:

Given that crude oil accounts for 59 percent of the cost of gasoline, a 34 percent increase in the price of oil should imply a 20 percent increase in the retail gas price. Likewise, a 22 percent decline in the price of oil should translate to a 13 percent decline in the pump price. However, that did not happen at the national level.

As Chart 2 shows, the spot price of gasoline (the price of gasoline at the refinery gate), as proxied by the prompt contract for New York Mercantile Exchange RBOB gasoline, generally rose and fell with the price of West Texas Intermediate crude oil. However, the response of U.S. pump prices has been highly asymmetric. While the price of retail gasoline cumulatively rose about as much as expected following Russia’s invasion of Ukraine, recent national retail gasoline prices dropped only 6 percent from the March peak, far less than the expected 13 percent.

This indicates that retail gasoline prices remaining persistently high was not the result of an oil shortage or high oil prices. Rather, the elevated retail gasoline prices must be attributed to events in the U.S. retail gasoline market beyond the control of oil producers.

Moreover, the asymmetry of the response of retail gasoline prices need not be evidence of price gouging. One potential explanation is that station operators are recapturing margins lost during the upswing, when gas stations were initially slow to increase pump prices. The reluctance to lower retail prices also likely reflects concerns that oil prices—and, hence, wholesale gasoline prices—may quickly rebound, eating into station profit margins.

Not only that. They are probably anticipating continuation of the increased price of oil. That’s undoubtedly going on at all levels.

Oil economist James Hamilton who posts at Econbrowser has documented how responsive the global price of oil is to supply and demand factors.

A final factor that should not be ruled out in evaluating the forces responsible for the increasing price of oil is the role of the low cost producer. Presently, the Kingdom of Saudi Arabia is the low cost producer of high quality crude. Their production and reserves effectively allow them to set floors or ceilings for prices.

So, let’s recap. President Biden was empirically wrong in pointing at retailers as the culprits in high oil prices. The effect of retail price controls will be to drive some retailers out of business but probably won’t reduce the price of gas at the pump since that’s already decided before it reaches the retailers. Oil producers are unlikely to be the culprits. However, there is some evidence that refiners, trying to hedge against past and future changes, may be raising their prices more than strictly justified. I’m not sure how we’d go about determining that.

Where I disagree with the editors is in their use of the phrase “willful ignorance”. I prefer just plain “mistaken” since it doesn’t attribute motives. Why would President Biden make such a mistake?

The editors present one reason: there is a strong temptation among progressives to believe in the immiseration thesis. If things are bad there must be an exploiter somewhere. It’s a form of magical thinking. I don’t believe the empirical evidence is as strong as they do. In addition I suspect that President Biden suffers from a malady common in those who’ve spent too much time in Washington: he believes in the competence, power, and reach of big companies. I think that competence in big companies is quite rare and, as noted above, “Big Oil”, i.e. Exxon, Shell, etc. isn’t a likely culprit in the high price of gas at the pump.

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A Reaction to the NATO Summit

You might be interested in Michael Tracey’s reaction to the NATO Summit recently concluded. The TL;DR version is that it was a highly orchestrated exercise in re-enforcing the preferred narrative which is much what I would have anticipated:

In order to attend, you have to surmount a number of obstacles. The first being cost: unless you’re a local in Spain, just getting to the Summit is going to be a significant expense, with airfare and hotel and such. I’m not breaking any news when I report that prices of plane tickets right now are absurdly high. So the journalists who manage to find a way to incur these costs are going to be a relatively affluent bunch, or work at publications willing to pay their relatively burdensome expenses. And if they’re willing to go through the trouble of organizing such a trip, chances are it’s because they already revere NATO, and are already ideologically invested in what they believe to be NATO’s noble mission. Natasha appears to fall in this camp.

My own view is that NATO is past its sell-by date. To reinvigorate it, the most powerful European countries need to be willing to, at the very least, bear the cost of their own defense. And expanding NATO’s operations into Asia is exceeding its charter rather dramatically.

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A “Known Wolf”?

We don’t know a great deal more about the perpetrator of the murders in Highland Park yesterday than we did yesterday evening. A shooter armed with an “assault rifle” gained access to a rooftop in downtown Highland Park, a prosperous northern suburb of Chicago, using an unsecured exterior access and fired randomly into the crowd of people assembled for the Highland Park 4th of July parade, killing 6 and injuring 31 others. Law enforcement quickly focused on Robert “Bobby” Crimo, known professionally as “Awake the Rapper”, a resident of Highland Park. Awake the Rapper had one minor hit in 2018.

WGN Ben Bradley reports:

Investigators have only just begun to piece together the motive and method of this murderous rampage.

Police said the 22-year-old suspect was “known to law enforcement…” One question that will be asked in the days to come: Were they aware of the violent videos have been online for many months?

There is no word yet on whether the firearms found at the scene can be connected to the shootings or whether that firearm can be traced to Mr. Crimo.

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Breaking: Shooting in Highland Park (Updated)

The media are reporting that five people have been shot and killed at the 4th of July Parade in Highland Park, a northern suburb of Chicago. In addition to those killed an unknown number were also shot. The shootings took place around 2nd and Central in the downtown part of Highland Park.

As of this writing it is being characterized as an active shooter situation.

Highland Park is a prosperous suburb about 15 miles north of here. That’s almost as far north of here as Lawndale and Englewood, where most Chicago shootings take place, are south. The contrast between Highland Park and Englewood couldn’t be more stark. Highland Park is mostly white and college educated. 11% of Highland Park’s population are immigrants, mostly Asian. Median family income is around $150,000. The average house costs around a half million. Englewood is just as black as Highland Park is white. Median family income is around $36,000. Almost all residents are native born. The price of the average single family home is aournd $92,000.

No word on the shooter or his motive.

I’ll update as more information becomes available.

Update

As of 1:00pm it is being reported that a firearm has been recovered from the scene and that the suspected shooter is a white male, 18 to 25 20 years of age. He has not been apprehended. It is being reported that the number killed is 6 with the number injured 19 24 31. I’ll keep updating.

Update 2

From ABC 7 Chicago:

Multiple agencies are searching door-to-door for a white male suspect, 18 to 20 years old, with longer black hair, a small build and wearing a white or blue shirt.

A gun was recovered at the scene, and the Bureau of Alcohol, Tobacco, Firearms and Explosives is urgent tracing it to find the original purchaser of the firearm.

The ATF told the ABC7 Chicago I-Team “that will tell us a lot” about “where and when it was purchased and by whom.”

Right now my money is on the perpetrator having escaped. If the rifle (“gun”) recovered at the scene is, indeed, the firearm used in the shooting and if it was obtained legally and if it can be traced back to the perpetrator, they may be able to identify and find the perpetrator yet but that’s a lot of “ifs” starting to build up.

Update 3

The “person of interest” was identified as Robert “Bobby” Crimo, known professionally as “Awake the Rapper”. He has been apprehended after a brief car chase. Frankly, I think there will be more to this story.

I checked the guy’s Facebook page (before it was shut down) and Twitter feed. People were posting lots of irate stuff on both. Someone has posted his 2018 rap video on Youtube.com. Not a fan. It’s pretty weird stuff.

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The Bite of Inflation


The graph at the top of this post, sampled from the Wall Street Journal, illustrates how Americans in different income groups are responding rising prices by changing their spending using debit and credit cards. The poorest who can afford it least are spending more—they must just to obtain the necessities of life. Everyone else, including the most prosperous, are economizing where they can.

I suspect this behavior does not indicate a return to a cash economy but is more likely to indicate changes to all spending. That does not bode well for retail on which the overwhelming preponderance of the U. S. economy depends.

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How The Economist Sees Russia’s War Against Ukraine

The editors of The Economist summarize the war in Ukraine to date:

Ukraine won the short war. Mobile and resourceful, its troops inflicted terrible losses and confounded Russian plans to take Kyiv. Now comes the long war. It will drain weapons, lives and money until one side loses the will to fight on. So far, this is a war that Russia is winning.

Here’s their assessment of Putin’s plans:

You can see where Mr Putin is heading. He will take as much of Ukraine as he can, declare victory and then call on Western nations to impose his terms on Ukraine. In exchange, he will spare the rest of the world from ruin, hunger, cold and the threat of nuclear Armageddon.

and here’s what they propose for Ukraine to win the war:

The best way to prevent the next war is to defeat him in this one. Leaders need to explain to their people that they are not only defending an abstract principle in Ukraine, but also their most fundamental interest: their own security. The eu needs to shore up its energy markets so that they do not fracture next winter. Ukraine must have more weapons. The risk of escalation today is real, but if a bad peace is forced on Ukraine Mr Putin’s nuclear threats will not stop. They will only become more dangerous, especially if Russia’s conventional forces are at a disadvantage.

In the long war ordinary Russians will suffer and Ukrainians endure unspeakable pain for Mr Putin’s vanity. To prevail means marshalling resources and shoring up Ukraine as a viable, sovereign, Western-leaning country—an outcome that its defiant people crave. Ukraine and its backers have the men, money and materiel to overcome Mr Putin. Do they all have the will?

I don’t know the answers to any of the questions they raise and I won’t pretend to know what Putin is thinking. 10% of Ukraine’s population has already fled the country (including to Russia). I’m skeptical that NATO support for Ukraine means a great deal without less phlegmatic support from Germany, the largest economy among NATO members other than that of the United States. They’ve pledged more support. Let’s see if they follow through or they’re just hoping it will all end without costing them anything.

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The Majorities in the 2023 Congress

At FiveThirtyEight Nate Silver projects that Republicans are favored to hold the majority in the 2022 House and the majority in the 2022 Senate is a toss-up. Here are his remarks about the House:

Overall, the Deluxe forecast expects Democrats to eventually lose the popular vote for the House by closer to 6 points, about the margin that they lost it by in 2014. And it expects Republicans to wind up with 237 seats in an average outcome, a gain of 24 seats from the 213 they had at the start of the current Congress.

While these are his remarks about the Senate:

Indeed, our forecast sees the overall Senate landscape to be about as competitive as it gets. The Deluxe forecast literally has Senate control as a 50-50 tossup. The Classic and Lite forecasts show Democrats as very slight favorites to keep the Senate, meanwhile, with a 59 and a 62 percent chance, respectively.

For comparison the Cook Political Report predicts that if all solid, likely and leaning Democratic seats go for Democrats, all solid, likely and leaning Republican seats go for Republicans, and the toss-ups split 3-2 for the Democrats that the present 50-50 split will be maintained. Larry Sabato’s Crystal Ball, on the other hand, making the same assumptions as CPR, sees the Senate as being narrowly carried by the Republicans. The difference is the the Crystal Ball see one less toss-up than CPR does.

In a normal election year, even a normal midterm election year, the Senate would be considered very unfavorable for the Republicans. In November’s election 14 seats held by Democrats while 21 seats held by Republicans will be decided. That’s a lot more seats that need to be defended.

However, this is not a normal midterm election. President Biden’s approval rating is much worse today than Obama’s was on election day 2014 or Trump’s on election day 2018. And all three of those projections are steady-state. IMO a significant number of factors need to break in the Democrats favor for the election results to be merely bad rather than apocalyptic:

  • Inflation can get no worse.
  • Crime can get no worse—in particular it can’t be a “long, hot summer”.
  • We can’t be more at war than at present.
  • Abortion needs to be a more significant voting motivator than present polls suggest.
  • Black and Hispanic voters must vote Democratic in numbers no smaller than they did in 2020.

just to name a few.

President Biden started his term likening himself to Franklin Roosevelt, indeed trying to be the next FDR. The comparisons with Carter have been numerous. Carter is beginning to look like a best case scenario. If things continue along their present trajectory Biden will be lucky not to be a Democratic Hoover.

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A “Scripted Production Masquerading as a Congressional Hearing”?

From the very outset of the House’s January 6 investigation committee, I pointed out that to have any sort of authority and legitimacy, Speaker Pelosi needed to accept and involve the representatives selected by the House minority, however antagonistic and obstructionist they might prove. Gary Abernathy’s column in the Washington Post illustrates how right I was:

Never have we seen such a scripted production masquerading as a congressional hearing. Narration and questions are carefully read from a teleprompter. The witnesses even appear to have been coached to pause at specific points to await the next prepackaged query. While chair Bennie G. Thompson (D-Miss.) and vice chair Liz Cheney (R-Wyo.) do the heavy lifting, other committee members sit in zombie-like silence, unless it’s a day designated for one of them to perform, too.

The committee’s tactics are particularly disturbing for those of us who identify and empathize with Trump supporters, but want the GOP to abandon the former president. We know that following a well-worn playbook pitting the same basic collection of usual adversaries against Trump will not succeed at changing minds.

His remarks on the allegedly “smoking gun” testimony by Cassidy Hutchinson?

Numerous news outlets reported almost immediate denial of the story, although generally from anonymous sources. But as Georgetown law professor Jonathan Turley tweeted: “It is the type of problem that arises when the focus of a hearing is persuasive rather than investigative. The account fit the narrative and the underlying fact seemed simply too good to check.”

Still, someone on the committee playing the role of skeptic could have perhaps challenged her on the details, as well as another episode wherein she said she personally heard Trump “say something to the effect of, ‘I don’t f-ing care that they have weapons. They’re not here to hurt me. Take the f-ing mags away.” Her habit of couching her recollected conversations in terms of people saying “something to the effect of” leaves plenty of wiggle room for later revision.

Everything Hutchinson said on Tuesday may well be true. But it’s more likely that she got some things wrong. By rushing her in front of the cameras without more fact-checking — or wiser heads determining to prune her testimony to only events she witnessed firsthand — the committee opened the door for her entire appearance to be summarily dismissed by critics. Such sloppiness doesn’t harm Trump nearly as much as it impugns both the committee investigating him and journalists too eagerly relaying its overscripted and faulty narrative as news.

The committee investigation might have served many different purposes. It could have been a thorough-going investigation of the events of January 6 with an eye to preventing their recurrence. That might have included investigations of the condition and conduct of the Capitol Police Force, the reports of police ushering people into the Capitol or agents provocateurs among the demonstrators, as well as a dispassionate analysis of the demonstrations, the breaching of the Capitol, and the conduct of the president and other public officials leading up to and during the events. It could have been educational, as George Will has urged. I think what we’re seeing is what happens when those purposes are completely overwhelmed by battlespace preparation for the next general election.

Mr. Abernathy concludes:

The committee is anxious to prove that Trump knew the election wasn’t fraudulent and yet engaged in numerous unsavory tactics to engineer and encourage an attack on the U.S. Capitol in an effort to prevent Biden’s certification as president. It’s a misguided objective, and will likely never produce evidence that will be trial-worthy. It is clear that Trump acted irresponsibly on Jan. 6, but it remains highly unlikely that Trump was involved in actually planning the attack on the Capitol.

There are multiple ways of looking at our present politics. My way is that politicians inevitably conflate their own personal welfare with the common good, that there is a considerable separation between elected officials and their staffs from the party rank-and-file, that many people are not particularly interested in politics and not strongly partisan, and that party affiliation is malleable, changing with conditions (yours, local, and national) and location, performance, and personalities. Maybe my view is old and anachronistic.

Another way is that we have become completely tribal. Once a Republican, always a Republican. Your tribe is completely right and the other tribe is completely wrong and cannot be swayed by logic, reason, decency, or appeals to the common good.

I wonder what people holding that view will think should Republicans gain decisive majorities in both houses of the Congress in the next election? My conclusion will be that Democrats screwed up. I presume theirs will be that Republicans cheated.

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Too Clever By Half

Apparently, I was ahead of the curve. In his most recent New York Times column David Brooks laments the financing of extreme Republican candidates by Democrats:

The Democratic Party is behaving recklessly and unpatriotically. So far, Democrats have spent tens of millions to help Trumpist candidates in Republican primaries.

In Illinois alone, the Democratic Governors Association and Democratic Gov. J.B. Pritzker spent at least $30 million to attack a Trumpist’s moderate gubernatorial opponent. In Pennsylvania, a Democratic campaign spent hundreds of thousands of dollars on ads intended to help a Trumpist candidate win the G.O.P. gubernatorial primary. A political action committee affiliated with Nancy Pelosi worked to boost far-right Republican House candidates in California and Colorado.

They are doing it because they think far-right Trumpist candidates will be easier to beat in the general elections than more moderate candidates.

What the Democrats are doing is sleazy in the best of circumstances. If you love your country more than your party, you should want the best candidates to advance in either party. And in these circumstances, what they are doing is insane: The far-right candidates whom Democrats are supporting could easily wind up winning.

Mr. Brooks goes on to point out, as I have, that such strategic thinking is misguided and might well backfire:

Many Democrats, living in their own information bubble and apparently having learned nothing from 2016, do not seem to understand the horrific electoral landscape they are facing. They do not seem to understand how much their business-as-usual approach could lead to a full Republican takeover in 2025 — which as this week’s Jan. 6 insurrection hearing reminded us yet again, would be a disaster for our democracy.

He concludes:

In 2020 Biden was the candidate who didn’t seem to be pinioned to the coastal elites. But Democrats are still being battered because of that association. And what are they doing to fix the problem? Spending money to support Trumpists.

Those crazies could be running the country in a few years.

There are a few things missing from Mr. Brooks’s commentary. The Trump presidency didn’t emerge ex nihilo, out of nothing. Trump was actually an effect and he was the result of the very factors to which Mr. Brooks calls attention: most Americans don’t want to live in the country the progressive left wants the United States to become. That is, as Mr. Brooks observes, “a basic difference in how people see the country”.

In addition I think that there’s something that Mr. Brooks fails to consider. Perhaps the Democratic incumbents Mr. Brooks is criticizing in his column love their jobs not only more than they love the country but more than they do their party. One of the key factors in being a successful politician is you must believe that you can win. They believe they can win and stop at nothing to do so.

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Griffin’s Departure

Illinoisans generally and Gov. Pritzker in particular should be relieved that the issue on which JB Pritzker ran for governor, a graduated income tax for Illinois, was rejected at the polls by Illinoisans when it was brought before them in 2020 now that Ken Griffin is leaving Illinois for Florida. One of the aspects of a graduated personal income tax rarely mentioned is that it renders the states that have them more dependent on wealthy individuals for revenue rather than less and Ken Griffin is the wealthiest man in Illinois, by all reckonings an order of magnitude richer than our billionaire governor. The 1% of total revenue he represents will be sorely missed.

The editors of the Chicago Tribune via Yahoo have their own reactions to his departure:

To put it mildly, Griffin believes that the state’s leadership, especially Gov. J.B. Pritzker, is inattentive to these issues which Griffin sees as raging so far out of control as to undermine the city he loves.

That’s why Griffin has spent a lot of money trying to defeat Pritzker by supporting the candidacy of Richard Irvin in the Republican primary for governor. How well that investment worked out will be revealed Tuesday night, but we suspect Irvin has not been all that Griffin, a very sophisticated political player, had hoped.

Whomever the Republican nominee ends up being will have a tough fight this November against Pritzker, especially in the wake of the Supreme Court’s recent actions, a boon to Pritzker’s electoral chances, and we’ll wager Griffin is not so enthused about candidate Darren Bailey, who has not expressed much interest in the concerns of secular, corporate Chicago.

Does Griffin’s exit matter? On one level, he is just one individual pursuing his best interests that he now believes lie outside of the state. He is just one of nearly 13 million Illinoisans, all with the right to expect attention and care from their elected leaders.

Griffin, of course, will be just fine in Florida. And Citadel will retain some employees here. All of that is true. And as some defensive political leaders have rushed to say, none of this is a big surprise. Griffin didn’t need to leak any draft decision to foreshadow what he intend to do. It came out of his own mouth. Loud and clear.

But while Griffin’s ideological foes have been saying various versions of “don’t let the door hit you …,” we don’t share that reaction. The violent crime problem is real and there is no question that Griffin’s drawing of attention to the international perception of a decaying city has been valuable, as has his tacit warning to Pritzker to not let any national presidential ambitions and the boxes that must be checked in feasance to the constituencies of Democratic Party get in the way of his sworn duty to the people of Illinois, including the business community. A counter argument coming from a credible source is healthy for this state. Griffin would surely have hated running for governor, but he’d have been a far better candidate than anyone on the current Republican slate.

And the state won’t just miss the tax receipts. Griffin has been a notable philanthropist in Illinois, especially in Chicago, funding a variety of causes, institutions and urban amenities, especially during the Rahm Emanuel era. His total personal giving exceeds $600 million; the other employees at Citadel have given a whole lot more. The University of Chicago Crime Lab, the Shedd Aquarium and Museum of Science and Industry aren’t glad Griffin’s going.

When you combine the departures of Boeing, Caterpillar, and Citadel, all within a matter of weeks and even when partially offset by Kellogg’s announced relocation to Illinois, it does not suggest a healthy state.

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