Gasoline Price Spike Alert

Prices at the pump may be in for a sudden surge.  And, no, the problem isn’t U.S. dependence on foreign oil, or uncertainty caused by an Iraq war with no end in sight, or the fear that the Israeli-Lebanese war could spread.

This time around the problem is closer to home.  British Petroleum has discovered that an Alaska oil pipeline that supplies 8% of the oil used in the United States has rusting out, forcing it to shut down the pipeline.With gasoline prices already at $3 a barrel, the glitch is likely to bring U.S. gasoline prices to record highs, and could bring oil prices in the United States above $75 a barrel.

Simply put, there are no good short term alternatives to oil for transportation purposes in the United States.  Both gasoline prices and diesel prices are a direct product of oil prices.  Yet, gasoline useage is remarkably unresponsive to gasoline prices, with consumption in Colorado at near record highs, despite already very high prices historically speaking.

Ethanol is an alternative fuel which many vehicles are designed to accept (although the owners of those vehicles are often unaware of that fact), but only a dozen gas stations in all of Colorado sell it.

Natural gas and electricity can be power vehicles, but neither has any meaningful market share.  No major automaker sells any pure electric vehicles, or even plug in hybrids, and natural gas fueled vehicles are pretty much limited to fleet use.  A few natural gas powered vehicles cruise the 16th Street Mall in Denver, and roam the Denver International Airport, but there aren’t many vehicles that run on that fuel.

What does this mean politically? 

At the very least, it means that politicians stances on energy may get a lot more notice than it used to before this price spike.

It could also have a mixed impact on government budgets.  Higher gasoline prices could drive up the cost side of budgets, while increased oil prices could produce more severance taxes.  Gasoline taxes, in contrast, are likely to fall slightly, as they are imposed per gallon, rather than based on the price of gasoline, and gasoline sales by volume are likely to decline slightly if prices surge.

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