"The problem is corrupt regulatory practices/policies and monetary growth orchestrated by the Federal Reserve. For regular readers of the WSJ we all know that the EPA's stifling regulations and hostility to private citizens have seriously contributed to this growing crisis - even way before the Obama administration. We also know that the debasement of the U.S. currency has contributed to rising oil prices. Yes, we all know this. Others may have insight into other aspects of the tightening of refinery production. However, those who make baseless, anti-intellectual accusations of "big oil" price manipulation, "oil companies gone wild" or some other half baked conspiracy theory of a de-regulated market have allowed themselves to betray their conscience and objective abilities to analyze cause and effect. You can ignore reality but you cannot ignore the consequences of ignoring reality.
"However, one topic that is often overlooked into this refinery squeeze and other industrial crises is the affect of artificial credit expansion by our banking system on the different stages of industrial production processes. An education in micro-economic temporal capital theory needs to be injected into this situation.
"As we all know in a modern economy consumer goods are the ends of a lengthy complex production process that requires ideas, time, capital goods, capital, labor, and scarce natural resources. Essentially, when demand drops off and voluntary savings picks up (people spending a lot less) business owners/capitalists pickup on those price signals and reroute capital goods and investment into the production processes most further from the final stages of consumer goods, which have now become less profitable because of the decrease in the interest rates associated with consumer goods. We then see production processes lengthened and widened as investment pours into capital goods most further from the consumer good stages creating new efficiencies and innovation throughout that particular industry (think about how the author of this article pointed out new pipelines needed to be built to meet demand - though part of lack of construction can be attributed to the regulatory scheme developed by anti-intellectuals). Capitalists may very possibly decide to increase their supply of present goods to others; that is they may decide to reinvest a greater percentage of their income they receive per period, acquiring capital goods and services as well as labor and natural resources. In that case, in the short run, their accounting profit margin will decrease, which is equivalent to a downward trend in the market interest rate. The profit margin falls as a result of an increase in monetary costs in relation to income. Capitalists are willing to temporarily accept this drop in profits, since they expect to generate in this way, in a more or less distant future, total profits larger those they would have earned had they not modified their behavior.
"However, once people start to increase their spending the production processes closest to consumer goods becomes more profitable. Of course, this is a simplification of an extraordinary complicated process that most important principals in understanding are time, capital theory, interest rates, and a critical analysis of monetary growth. If anyone takes anything away from this post, its in the final stage, the stage of consumer goods and services, the jump in voluntary saving invariably generates an initial drop in consumption (in monetary terms). However, the lengthening of the productive structure is followed by a substantial real increase in terms of quantity and quality in the production of consumer goods and services. Given that the monetary demand for these goods in invariably reduced, and given that these two effects (the drop in consumption and the upsurge in the production of consumer goods) exert similar influences, the increase in production gives rise to a sharp drop in the market prices of consumer goods. Ultimately this drop n prices makes it possible for a significant real rise in wages to occur, along with a general increase in all real income received by owners of the original means of production (labor).
"When the banking system injects artificial credit expansion from lending out customers' deposits - a violation of traditional legal principals - such an event can distort price signals, create malinvestment, and create products that people truly do not want. When credit expansion is induced from the banking and central banking system an industrial crisis will eventually ensue. The current refinery squeeze can partly be attributed to this scheme. As in all credit induced crisis six microeconomics causes of the reversal of the boom that credit expansion invariably triggers: (1) The rise in the price of the original means of production (labor and natural resources); (2) the subsequent rise in the price of consumer goods (hello oil!); (3) the substantial relative increase in the profits of the companies from the stages closest to final consumption; (4) the "Ricardo Effect" (please Google); (5) the increase in the loan rate of interest - rates even exceed precredit-expansion levels; and (6) the appearance of losses in companies operating in the stages relatively distant from consumption (think refineries): the inevitable advent of a crisis."
