Facebook

Are “high” gas prices Obama’s fault?

Q:  Republicans on the campaign trail blame President Obama’s energy policies for high gas prices.  They point out that when Obama took office gas was at $1.87/gal and it is now above $4.00.  Are Obama’s policies to blame?

Gas Prices

A:  Supply and demand, the state of the economy and international tensions over Iran all play a role in higher gas prices. 

When Obama took office in January 2009, we were in the deepest recession since the great depression and demand for gasoline was down and so were gas prices.   As the U.S. and the global economies recover, the laws of supply and demand are forcing gas prices back up.  If one compares current prices to those in effect right before the economy collapsed (see chart above), it seems likely that current gas prices are consistent with a longer term trend, rather than as a result or Obama’s energy policies.  On the supply side, the U.S. is extracting more oil from domestic sources than anytime in the last 8 years and has quadrupled the number of operating oil rigs, so that is really not the issue.  On the other hand, one could say that the improving U.S. economy, which is result of Obama’s economic policies, is the real cause – the demand for oil and fuel is rising, and as a consequence, the price of gas.

The global economy is also recovering and using more fuel - there are three times the number of cars in China than there were four years ago - and for the first time in 60 years the U.S. is a net exporter of fuel (gasoline, diesel and aviation fuel). Right now fuel is our biggest export in terms of dollars. 

If fuel is so precious why are we shipping it overseas?  EPA regulations implemented in 2006 forced refineries to produce a cleaner burning fuel (ultra low sulfur), the refineries responded, and as a result our fuels are in great demand around the world.  This would seem to be a case where regulations have created U.S. jobs not killed them!  Other countries are willing to pay more for fuel and so we are shipping it to them.  That is the way supply and demand and the free market works.  Europeans historically pay two to four times more for gas than we do.  If we want to keep more of our fuel here, we may need to pay even more for it. 

OilProduction

Republicans will say that, “Drill here, Drill now” will lower gas prices, but analysis of historical data suggests that this is simply not true.  Gas prices historically have no statistical correlation with how much oil the U.S. pumps.  Not only are we pumping more oil now than anytime since 2003, when gas was at $2.10, we are actually also importing less oil.  It is simply that U.S. sources of oil are a drop in the bucket, so to speak, on the world market. 

In fact, a recent article in Fortune Magazine was titled When "Drill Baby Drill" Means "Export Baby, Export", as foreign demand by countries willing to pay for their energy means that U.S. customers will not see savings with more domestic production.

The U.S. and North America do have other potential energy sources, e.g. tar sands, but most of those unfortunately, are only economically viable if the price of oil and gas stays high. There are also concerns about the ecological impact of extracting some of these potential energy sources that add to their overall real costs. You can forget about $2 gas from tar sands oil coming down the Keystone XL pipeline.

In fact, recent studies and congressional testimony has revealed that the Keystone XL pipeline would actually lead to INCREASED gas prices in the U.S.  How is that possible?   The point of the XL pipeline is to get the tar sand oil down to the Gulf Coast where it can be exported to overseas customers.  And because it will actually decrease oil supplies in the Midwest where the Canadian oil is currently going, it will lead to higher gas prices in that region at least, not lower prices.  TransCanada, the pipeline owner, was asked if they would be willing to stipulate that the oil going to the gulf would exclusively be for U.S. use, and of course, they said, “No!”.

International tensions over Iran are also causing the price of crude oil to rise and fueling speculation in the energy markets, which also tends to raise gasoline prices.

Fortunately, a Bloomberg poll released on March 12th 2012 found that only 23% of the public think that Obama is primarily to blame for high gas prices, and 66% think that oil companies and Mideast governments are taking advantage of international tensions over Iran.  There is also no doubt that a growing US economy and increasing worldwide demand are also major contributors to higher gas prices.