Monday, June 04, 2007

US gasoline prices not going down

Econbrowser has a nice piece today titled "Petroleum refining and comparative advantage" which documents how dependent US drivers have become on imports of gasoline...not oil, but gasoline. A link is provided to data from the US government which shows we are importing ten times as much gasoline now as we did in the 1950's. A key point in the piece is that the price at the pump in the US has to be high enough to attract gasoline supply from foreign refiners. That fits with the idea that gasoline consumption is increasing in the rest of the world, particularly China: in the short term, whoever is willing to pay more for the fuel is going to get it.

The rest of the piece talks about how very little refining capacity has been built in the US in the last thirty years; a big part of the reason has been that gas prices have been so low that there was no economic incentive to build new refining capacity.

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