Wednesday, August 24, 2005

Sayonara Tim Evans.

I've always been mildly entertained by Tim Evans, watching as he railed against the rising price of oil. He was consistently wrong, but I thought I should read his stuff to understand what the counterargument was. Now, unfortunately, I realize he's just not too bright.

Here's the problem:

Hawaii has a price fixing plan for gasoline.

Sounds nice, right, but governments don't produce gas, companies do.

Hawaii has tied it's prices to the mainland, but it's not on the mainland, nor, I believe, does it have it's own oil. Since Hawaii is an island in the middle of nowhere, and not as big a market as New York or Los Angeles, the transportation costs per barrel to Hawaii are higher and the number of competitors serving the market are fewer. So Hawaii puts this plan into place, tying it's prices to markets that are easier for companies to serve.

The fly in the ointment: As oil goes up, the price of transporting it goes up too. And if oil goes up enough so that the margin specified by Hawaii for gasoline over the mainland no longer covers these costs, what happens? The companies might just leave Hawaii a little (or a lot) short, as they focus their resources on more profitable activities. Given the fact that the reason for a large increase in price might be a shortage to begin with, Hawaii might find it has doubled it's bet - and lost out big time.

The only idiots who don't seem to understand this are legislators and Tim Evans.


"The fact that their pricing mechanism is market-related minimizes the risk that a physical shortage would arise," said Tim Evans, senior oil analyst at IFR Energy Services in New York.

"They are attempting to go about this in an intelligent fashion," he added.