Economists from Stanford University's Graduate School of Business are backing the refining-marketing industry's contention that product-supply problems, often stemming from widely differing regional fuel specifications, were the real culprit behind gasoline prices of more than $2 in late spring/early summer 2000. Jeremy Bulow, an economics professor at the school, was chief economist at the Federal Trade Commission two years ago when Congress demanded an investigation of the gasoline price spikes. The report that emerged did not tell the whole story, he says, so he and three FTC colleagues (Jeffrey H. Fischer, Jay S. Creswell Jr. and Christopher T. Taylor) took another look. They conclude that oil companies responded as quickly as was logistically possible to correct this price spike. The Midwest event was caused by a combination of complex factors, many of which inevitably will cause future price spikes, Bulow concludes. "Refiners are producing at a very high percentage of capacity these days. When there is a supply disruption, we will have a price spike," he maintains. There is no excess fuel production from which to draw. He also blames "boutique fuel" regulations, which vary by region. The gasoline in Chicago is different from the gasoline in Detroit, and even from the gasoline in the suburbs of Chicago, according to Bulow. It takes two weeks to make a specific gasoline, and several more weeks to get it to its specific market. Local and regional regulations also influence prices. For example, in California, which has its own specific gas formulation, gasoline can be shipped in from another U.S. location only in a Jones Act Vessel-a tanker or barge built in, crewed by, and flying under the flag of the United States. It costs as much to ship fuel from Louisiana to California as it does from Norway.
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