Johny Tempus

1/ One thing about commodities that increasingly frustrates me is the constant government hyperventilation whenever energy gets tight and prices rise disproportionately. It’s as if cheap energy is a basic human right. Well, it isn’t. 2/ The entire point of a commodity price is to balance supply and demand — every day, in real time. If we don’t have enough diesel, the price must rise until somebody at the margin consumes less, somebody produces more, or another barrel gets pulled in from somewhere else. The price is the invisible hand doing the heavy lifting. Suppress that signal and you don’t solve the shortage. You make the adjustment mechanism worse. Having such a signal available worldwide is the magic: a market price is an extraordinarily efficient mechanism for compressing dispersed information and coordinating behaviour without anybody needing to possess all that information. A diesel price incorporates, in one number, millions of changing facts: refinery outages, crude availability, freight cost, inventories, weather, demand, alternative fuels, storage economics, credit, geopolitical risk, and what every buyer and seller is willing to do at the margin. 3/ Yet whenever the signal becomes politically uncomfortable, governments attack the signal instead of the shortage. The US considers diesel export restrictions. Poland proposes a windfall tax and fuel-price intervention. Britain introduced its windfall tax in 2022. The EU followed with its “solidarity contribution.” Different instruments. Same reflex: prices are high, therefore punish the price mechanism or the companies responding to it. 4/ Take a US diesel export ban or quota. Sure, it could reduce US diesel prices in the short run. Then the second-order effects begin. If US diesel inventories build because refiners cannot export the surplus, refining economics deteriorate and refiners have an incentive to reduce runs. But a refinery doesn’t produce only diesel. It produces gasoline, jet, naphtha, LPG and other products from the same crude barrel. Congratulations: you “fixed” diesel and may have tightened something else. Meanwhile Brazilian farmers get the bill. 5/ Poland’s conservative government is now playing the same Marxist nonsense game. It already capped fuel prices this summer and is now proposing a windfall tax. How does confiscating refining profits create one additional barrel of refining capacity? It doesn’t. If anything, you are taxing precisely the economic signal telling refiners and entrepreneurs: WE NEED MORE CAPACITY. 6/ And this is the particularly absurd part in Europe. For decades Europe made building and operating refining capacity progressively less attractive while simultaneously encouraging diesel consumption. Then a global refining shock arrives, diesel cracks explode, and politicians discover — astonishingly — that Europe doesn’t have enough diesel. Their solution? Punish the remaining refiners for the shortage. 7/ How about doing the opposite? Give the industry a fast-track permitting regime for major refinery expansions. Make strategic capacity an explicit energy-security objective. If necessary, provide cheap, long-duration financing tied directly to incremental capacity. Poland could also build a much larger strategic crude reserve, available to domestic refiners during genuine supply emergencies under transparent rules, with any subsidised crude value contractually passed through to consumers. 8/ None of that lowers diesel prices tomorrow. That’s precisely the point. You cannot legislate a refinery into existence tomorrow. But you can make damn sure the capacity exists when the next shock arrives. The OECD oil market has an extraordinary ability to correct shortages and gluts through substitution, arbitrage, inventories, changing refinery runs and ultimately new investment. But only if politicians allow prices to do the work…! Not difficult to understand. @donaldtusk @sikorskiradek