We seem to be foolishly assuming that oil companies exist to make gasoline. They don't. They exist to make money. They are currently making record profits by tightly controlling the market. If they put in more refineries, then there will be more gasoline, but they will make less money. They have all kinds of plausible reasons for not putting in more refineries, but a lot of these outfits are the same people who had plausible reasons for not having enough electricity for California during the power crunch a few years ago. How good are their reasons? And is it really reasonable to expect a company to undercut it's own profitability by increasing supply when they have an effective monopoly?

Your brief summary of oil economists' diagnoses and prescriptions sounds rather similar to the California electricity shortage of 2001-2002: some primary producers offline for various reasons, some primary producers offline for deferred maintenance...

Granted the refineries that are down due to Katrina are more explainable than power plants down to a Death Star (or other nefarious and conspiratorial cause), but reducing supply to drive up demand and then pricing accordingly certainly sounds familiar.

If gas prices are high because of limited refinery capacity, why don't marketplace forces lead to new capacity being built? I understand that the existing refiners might like the status quo, but what keeps new guys from jumping in to get a piece?

Why invest in new refineries when we're at peak production and will never recoup the initial investment? The environmentalists are still an excellent scapegoat as they were during the California blackouts.

If there's a shortage of refining capacity rather than actual supply and the refineries act as a bottleneck, why isn't there a surplus of crude? Why is the price of oil at the wellhead rising lockstep with refined products?

Tight refinery capacity increases the "spread" between the price of raw crude and finished product, it does not drive up the price of crude oil per se. Do a simple thought experiment. What would a barrel of crude be worth if all refineries went off line? Virtually nothing. A barrel of refined product such as gasoline on the other hand might be priceless. The current refinery shortage is caused mainly by the decline in light crude available for US refineries. Heavy crude makes up a larger part of what is available. Valero oil beefed up their ability to process heavy crudes and are making a bundle. New refineries being built overseas (China) are set up for heavy crude. Why doesn't Salon spend more time on the lifstyle implications of ever more pricey petroleum?

Another culprit for part of the increase in gasoline prices is the different standards applied by each state for additives. This, too, is misinterpreted (I'm being generous and not saying "misrepresented") by the anti-environmental lobby as another reason why government shouldn't regulate fuel. But the problems posed by mandatory gasoline additives are minor compared to the problem of having fifty different standards--in other words, the problem of state governments making the rules, instead of the federal government. One government, one standard, and all your incompatibility problems go away.

Now, for the refining capacity question: This is just more evidence of why the dogmatic belief in "letting the market decide" for the past twenty-five years is a disaster. When the market is left to decide where investment is to be made, it naturally goes where the most profit is to be had. Every dollar "invested" in shopping mall development in the 1980's, or in dot-coms in the '90's, is a dollar that isn't available to build refineries. And every decision is influenced, not only by how hard it is to make money doing something useful (building refineries, developing new antibiotics, teaching kids to read) but also by how easy it is to make money doing something else (building SUV's, inventing Viagra, speculating on currencies.)

Markets chase profit, not utility. Any problem-solving that happens as a result is at best a felicitous side effect. We'd do well to remember that as a variety of problems come to the fore and the free-market cheerleaders continue to insist that the best way to deal with them is to not.

The oil companies and their pimps in Washington got a totally unexpected, yet still fortuitous (for them) outcome from their disasterous Middle East adventures: they went in planning to gain a controlling interest in the crude oil supply and the ability to set its price, putting themselves finally on a par with the OPEC sheiks. Instead, they haplessly caused a restriction in supply, garnering no control over price of a barrel, which steadily shot upward, and set up the possibility of basing this price in euros, a fatal stab in the heart to the dollar.

But alas, backs to the wall and convinced as they are the American demand for energy is inelastic, the dimwits realized they could gouge even more at the pumps and the SUV-driving masochists would fill up, anyway... and nobody in this administration would dream of stopping them. Bonus: flacks will line up to blame environmentalists for your "woes!"

One profit is as good as another... Talk about YOUR WIN - WIN!!

As has been pointed out already, Mr. Leonard, a bottleneck in refining would not cause an increase in the price of oil. At most, it might cause an increase in the price of select, easily-refined oil.

Adding on to the problematic statements in this article, if gasoline is cheap, why build more refining capacity? It's very expensive, and not worth it until gas prices are high.

Where have we read and heard about taking major production facilities down for much needed maintenance? Does California Electricity manipulation ring a bell? I would suggest that the knowledgable folks in the oil industry have known for years that by failing to expand refining capacity their profits would increase as surely as they understand that new crude resoures are declining. Given these crossing curves and the tax incentives, breaks, and give-aways why should anyone be surprised at the large profits being booked at this time?

Further, our Federal and State Budgets are benefiting from increased fuel prices: where is the Government motivation to reduce fuel taxes?

As an individual, I'm powerless to bring any change to these problems. By controlling my personal consumption, I hope to live out the remainder of my life comfortably and pass on to the Gen X,Y,Z's these issues of resource consumption with the hope that they have the motivation and incentive to correct our abuses.

Petra