It really should not come as much of a surprise that the damage caused by Hurricane Katrina will lead to further increases in the price of oil and gasoline, at least on a temporary basis. This is how the market responds to events that disrupt supply, after all.
The problem is that I think its almost inevitable that, with Congress returning after Labor Day, there will be increased calls to do “something” about the rising prices. Initially, this something may be a call to release oil from the strategic petroleum reserves. This may not be an entirely bad idea — the reserve is, at its base, a distortion in the normal flow of supply and demand to begin with — but any effects would be small and temporary. Before long, though, I will not be at all surprised to see calls for price controls of some kind and talk of the profits of the “evil” oil companies.
Oil is expensive, although not relatively speaking compared to how much it cost in 1980, because it is in high demand, because it costs alot to get it out of the ground and refine it into gasoline, and because the part of the world where most of it comes from is currently incredibly unstable.
Like I said, it makes perfect sense that this would be happening. What we should be afraid of is not $ 3 per gallon gasoline, but what will happen if, and when, the government tries to do something to “fix” the alleged problem.
Update # 1: The call for price controls has already begun.
