Katrina, Oil and the Fed
The economic damage from Hurricane Katrina will take months to sort out, but it's not too soon to sort the good from the bad among possible government responses. The first rule of policy in a disaster should be to do no more harm.</br></br>In the category of good is the Bush Administration's decision yesterday to release some oil from the Strategic Petroleum Reserve to help Gulf Coast refiners keep operating. With oil supplies reduced, the refiners need to borrow the SPR crude or they might have to shut down. The companies will return the borrowed oil to the Reserve when private supplies are back to normal.</br></br>The Administration is also right to resist the temptation to go further and flood the market with Reserve crude, even if that would look good politically. "The President is willing to do what it takes to relieve an oil company, but not enough to relieve the crushing burden of oil speculation and price-fixing on American consumers and small businesses," declared Congressman Ed Markey, thus taking the prize as the first Member of Congress to exploit this natural disaster for partisan gain. His staff should tell the Massachusetts Democrat that releasing more crude won't affect prices at the pump by one penny if the oil can't be refined into gasoline.</br></br>Far more likely to reduce gas prices is yesterday's timely decision by the Environmental Protection Agency to suspend temporarily some pollution standards on gas and diesel fuel to ease shortages. One cause of generally higher gas prices that isn't well understood by the public is the proliferation of "boutique" fuels to meet anti-pollution rules passed by Congressmen like Mr. Markey. These require special refining capacity, and with the shutdown of at least eight refineries it makes sense to ease these rules given the more urgent need to rebuild fuel supplies.</br></br>Even better, the EPA waived the rules for all 50 states, not just those directly hit by the hurricane. This recognizes that Katrina will end up affecting gas prices nationwide because of shortages and delivery delays, so 50-state relief ought to reduce the number of local price spikes. We wish the EPA had extended the waivers beyond September 15, but at least that's the day the EPA's requirements for summer-fuel blends expire and the industry may have winter fuel stocks ready to go.