Declining refinery capacity is pushing gas prices higher, but policy uncertainty makes companies less inclined to invest in new refineries or update old ones.
I was never a very eager student in law school but did absorb a few enduring lessons in between all the video games and beer pong. One of them came during a corporate law class, in which the professor emphasized repeatedly that, while companies and investors surely care about a law’s substance (e.g., tax rates or whatever), they care more that the policies are crafted and applied in a consistent and predictable manner over time. In short, market actors—especially the big boys—can adjust to and plan for almost anything (and respond accordingly), as long as said thing is relatively sure to happen. High levels of economic and policy uncertainty, on the other hand, are simply a killer—invoking paralysis in a company and, by extension, the economy.
I force you to endure this long windup because I’ve been thinking a lot about that law school lesson—and policy uncertainty more broadly—the recent political drama about U.S. gas prices, which in case you haven’t noticed are pretty high right now (though still off inflation-adjusted highs):
Given gas prices’ political importance in the United States (for better or worse)—amplified today by broader inflationary pressures—the Biden administration has reportedly been scrambling to find a few policy levers it can pull to lower prices over the high-demand summer driving months. Just today, the president called on Congress and states to suspend gas taxes. He also just sent a sternly worded letter to major U.S. oil refiners, accusing them of profiteering during a global energy crisis and calling on the companies to produce more gasoline and diesel… or else. From the Associated Press: