Gas Prices About To Become An Election Issue
Prices are rising at the pump, and the candidates for President are starting to notice.
We learned over the weekend that gasoline prices are higher now than they have ever been at this time of year so, it’s not entirely surprising that rising fuel prices have quickly become a part of the stump speech of every Republican candidate for President:
WASHINGTON — Rising gasoline prices, trumpeted in foot-tall numbers on street corners across the country, are causing concern among advisers to President Obama that a budding sense of economic optimism could be undermined just as he heads into the general election.
White House officials are preparing for Republicans to use consumer angst about the cost of oil and gas to condemn his energy programs and buttress their argument that his economic policies are not working.
In a closed-door meeting last week, Speaker John A. Boehner instructed fellow Republicans to embrace the gas-pump anger they find among their constituents when they return to their districts for the Presidents’ Day recess.
“This debate is a debate we want to have,” Mr. Boehner told his conference on Wednesday, according to a Republican aide who was present. “It was reported this week that we’ll soon see $4-a-gallon gas prices. Maybe higher. Certainly, this summer will see the highest gas prices in years. Your constituents saw those reports, and they’ll be talking about it.”
Iran’s recent warnings of a disruption in the global oil trade have pushed the price of a barrel of domestic oil to more than $103, a six-month high and up about 34 percent since September. That has helped drive the average price of a gallon of regular gasoline in the United States to $3.52, a 30-cent increase in the past two months. It is already approaching $4 in some places.
Economists say the current price of oil is only a modest drag on the economy. But a big jump — combined with tensions over Iran and continuing European debt worries — could present a more significant challenge to America’s recovery, they say.
For the president’s economic team, the specter of such increases in oil prices comes on the heels of positive economic news that has lifted Mr. Obama’s approval rating, including better-than-expected job growth, a surging stock market and a payroll tax deal that will put more money in the pockets of millions of Americans.
But Mr. Boehner’s message to his members echoes the aggressive talk coming from the Republican campaign trail, where the men vying for the right to challenge Mr. Obama are increasingly blaming Mr. Obama’s administration for rising gas prices. A gallon of gas had dropped to $1.89 when Mr. Obama took office in 2009, in large part because of the fall in oil demand caused by the financial crisis, and has almost doubled since.
“They want higher energy prices. They want to push their radical agenda on the public,” Rick Santorum said at a campaign event last week, accusing Democrats of pushing alternatives to oil. “We need a president who is on the side of affordable energy.”
Newt Gingrich wrote on Twitter on Friday that “gasoline prices are unacceptable. We can do better!” He urged his supporters to sign a petition on his Web site calling for a return to $2.50-a-gallon gas. “Drill here. Drill now. Pay less,” the petition says.
And talking points from the Republican National Committee that go out to conservative commentators every Friday often include rising gas prices among the “Top Line Messaging” for the week. A recent “Pundit Prep” document cited the national debt, unemployment and the price of gas as the three best ways to define the “Obama economy.”
Steven Taylor already noted the utter ridiculousness of Newt Gingrich’s comments about gasoline prices, but he’s just one example of what we’re likely to see from politicians eager to prove to voters that there is some kind of easy solution to the issue of rising energy costs when in fact there isn’t. Republicans, for example, will no doubt trot-out their good old “Drill baby, Drill” slogan, claiming that the easy solution to higher prices is to increase oil exploration. While that’s certainly a good idea, as is the reconsideration of the President’s ill-advised decision to deny a permit for they Keystone XL Pipleline, it isn’t necessarily something that will bring down prices significantly. For one thing, domestic oil production has actually steadily increased over the past three years to such an extent that even the experts are surprised:
The United States’ rapidly declining crude oil supply has made a stunning about-face, shredding federal oil projections and putting energy independence in sight of some analyst forecasts.
After declining to levels not seen since the 1940s, U.S. crude production began rising again in 2009. Drilling rigs have rushed into the nation’s oil fields, suggesting a surge in domestic crude is on the horizon.
The number of rigs in U.S. oil fields has more than quadrupled in the past three years to 1,272, according to the Baker Hughes rig count. Including those in natural gas fields, the United States now has more rigs at work than the entire rest of the world.
“It’s staggering,” said Marshall Adkins, who directs energy research for the financial services firm Raymond James. “If we continue growing anywhere near that pace and keep squeezing demand out of the system, that puts you in a world where we are not importing oil in 10 years.”
There are doubts that energy independence is that close. But many say the booming shale oil fields in Texas and North Dakota and the growth of deep-water drilling in the Gulf of Mexico will allow the nation to cut its reliance on oil imports significantly over the next couple of decades.
Last month, the U.S. Energy Information Administration upgraded its forecast of crude production in 2025 to 6.4 million barrels per day – 1 million barrels more than were pumped in 2010.
Previously, the EIA had projected the U.S. would peak at 6 million barrels in 2022.
“The growth that we’ve seen in shale, that’s one of the biggest changes that’s contributing to our outlook,” said Dana Van-Wagener, a research analyst for the agency. “It’s evolving so quickly. We weren’t anticipating enough growth.”
So here we are in the middle of a massive boom in oil production that nobody anticipated and still, oil prices are going up. Maybe we need to add to that by increasing offshore drilling? Well, a 2010 study by the U.S. Energy Information Administration, part of the Department of Energy, found that opening the entire outer continental shelf to offshore drilling would have very little impact on the price of gasoline. In ten years, the report found that there would be virtually no impact on gasoline prices from the increased supply of oil. Over twenty years, the report projected that US gasoline prices would be three cents a gallon lower. Three cents. So much for “Drill Baby Drill.” The reason for this is that most of what determines the price of gasoline lies far beyond the control of any politician, especially given the fact that we now live in a world where the price of crude oil, the biggest component in the price of a gallon of gas, is influenced by demand on a worldwide basis regardless of where the oil itself actually comes from. There are, in other words, no easy solutions to this issue and any politician who guarantees that they can return us to the days of $2.50 per gallon gas is lying to you.
So if drilling is unlikely to bring about that $2.50/gallon gas that Gingrich is promising, what would? Well, as I noted last year , there is one sure way to bring down worldwide energy prices:
Of course there is one thing that is virtually guaranteed to bring the price of oil and gas down. If the economy were to contract again, consumer and business demand for energy would fall, and world prices would decline at least to some extent. Of course, there are plenty of bad things about another recession, and no politician is going to tell the public that the best thing they could do to bring down gas prices is to crash the economy again. Instead, we’ll get more demands for “investigations” into speculation from the White House, and continued repetitions of the catchy, but rather meaningless, phrase “Drill Baby Drill” from Republicans. In the meantime, don’t count on prices at the gas station going down any time soon, at least not until this current price bubble has decided to deflate.
Of course, that’s the kind of explanation that politicians never want to give and voters never want to hear. It’s much easier to claim that you’ve got an easy solution to what is, in reality, a complex problem. We saw it back in 2008 when John McCain and Hillary Clinton came up with the idiotic idea of the Gas Tax Holiday, which likely would have resulted in absolutely no savings to consumers during the time it was in effect, and we see it now from people like Newt Gingrich. None of that really matters, of course. If consumers end up paying something close to $5.00 per gallon for gasoline this summer then it’s going to have an impact on the election and, potentially, the economy. The fact that there really isn’t anything that anyone in Washington can do about the matter won’t really matter.
Just to help comments on this topic, here’s a link to a view of gas prices from the last 6 years:
Before anyone says “Gas prices were running about 1.79 when Obama took office,” if you look at the chart you’ll see that price was a six year low, created as Doug points out, by the crash of 2008. Prior to it, in the summer of ’08 gas hit it’s all time high for that period.
BTW, here’s a source that tries to cobble together the price back to the mid 70’s (note that it is working across a couple sources):
One thing to see is that the rapid rise in gas prices takes place under the previous administration. Which isn’t to blame Bush, but to speak to Doug’s larger point.
I’d expect to see all the candidates (including Obama) pander on this issue. They’ll probably all make noises about magical ponies. I wouldn’t be surprised to see the old gas tax holiday idea rear its head.
@Rob in CT:
You are probably correct. Although I will say that I credited Obama during the last election for not pandering on the tax holiday like Hillary and McCain did.
It’s a lot easier to say, “Drill Baby, Drill!” This election is more about soundbite than concrete ideas, and what better way to get people on your side than a nice catchphrase?
And Doug, I was actually the same thing about how to get price of gas down. Of course, another way to do that is to create a more competitive environment for energy. But no one would want that.
The irony of this is that the folks who are raising this issue also want to start a war with Iran….what would happen to gas prices then I wonder?
Having re-read the piece, I’ll also agree with Doug that we’re likely to see more grandstanding about “investigating speculators.” Oh, and also “windfall profits taxes” on eeeeeevil Exxon Mobil.
All the GOP has to offer at this point is the hope that the year’s events cause pain for millions of Americans…
but we’ll keep posting stories about it anyway.
I’m reminded of that idiot at Strata-Sphere…who for months leading up to the ’08 election wrote almost daily about the so-called “Whitey” Tape, although he claimed to be positive it didn’t actually exist.
Or the local TV Stations that breathlessly warn people to go out and buy supplies because Snowmageddon is coming…then do stories about the empty shelves at grocery stores.
@Rob in CT: Right. We can never tax windfall profits because that will make the magic market unicorn fairy cry. And we should never, never, never look to see if speculators are gaming the system, because that will hurt the feelings of the invisible hand. Let’s face it, if the rich get much richer and the poor suffer, that’s the way the world is supposed to work, right?
If you don’t think that $5/gallon gas would have an impact on the election they you’re being pretty naive.
@Rob in CT:
Probably but when there was last big run up during Bush’s presidency speculation wasn’t entirely absent as a factor. It’s not the case now which is mainly the product of increased demand as the economy picks up steam and nervousness about the middle east. Legitimately so since I’ve little doubt oil will be more expensive next winter than this (I’ve just bought my heating oil for 2012/13)
It’s certainly a factor but the extent to which it resonates depends on a lot of other things. And it’s not as if it’s an issue where either candidate has a magic wand. What’s Romney’s claim going to be? I will immediately reduce gas prices to $2.50 a gallon?
I’m sure it will…because psuedo-journalists will continue to write about how it’s going to impact the election.
There are some errors of fact and perspective here, as well as logic.
The notion that recent increases in rig count or production rates are at record levels or rates is just bad analysis. The very same phenomenon cited for rebounding gas prices is at work: recovery from the downturn. Perspective: from a long term view, the rig count was greater than 2000 from the 70s through the mid 80s before a long slide down to a little under 1000 for a period of about 15 years. In response to rising crude prices the count rose to 2000 right before the crash and then fell back to 1000. It has now returned to about 2000. It is not at record levels. Itvhas simply recovered to the level of 5 years ago. If one chooses to measure rates of growth off the trough then they are “record” but that is just pure sophistry.
Even better, the rig count paralleled crude prices, a 1 to 1 ratio if you will, from 85 to 2000. As crude prices rose fromit has lagged. It currently is decoupled from the earlier period at about 60%. Hardly ” record” or responsive to crude oil prices.
So “drill baby drill”in fact makes sense. Further, would anyone say to a farmer as the price of wheat and corn has risen, but fallen back somewhat in response to increased planting ” well you’ve increased planting by x, so its foolish to increase planting by 1.25 x? Of course not. That’s bizarre ” logic.”. I would lastly note that the composition of the price of gas at pump is volatile and gets various measurements by various sources. But over long periods the crude portionh has run from a third to a half. It’s currently two thirds. That is, it’s disproportionately high by historical standards. If you want to drive down gas prices you drive down crude. And crude is a commodity………..create more supply.
As for Presidents and gas. Why does it make sense for a President to champion minuscule amounts of green energy, and his energy secy to go on record saying we have to drive up the price of gas to foster green technologies………….and then insist no President can have no effect?
There is a bottom line here. The country could embark on a long term program of energy independence and achieve it if not beholden to fringe groups. I read the EIA report every year (in fact I’m surprised to here its out already; it usually come out later) in last years report if memory serves they projected a doubling in alternative sources………..wow! Doubling! So that now they would provide eevn under these rosy projections some 2-3% of needs. It’s fossil fuels as far as the eye can see. If anyone is serious about energy independence and cost, focus there.
I drove up from FL to DC last week. The lowest price I found along I-95 was $3.43 in both SC and southern VA. In DC today, it’s over $4.00. According to GasBuddy, prices along 95 have jumped $0.20 since I last passed those truck stops. Heading back later this week will cost me about $20 more than the drive up.
I think there’s going to be hell to pay if gas sticks at over $4.50/gal. It’s absolutely true that the President can’t do a damn thing about it, but he’s still going to be blamed by both Reps and the general public.
Expanded drilling has to have an effect on prices, if only to put more product in the supply line.
I’m sure, too, that speculators are at least in part responsible for the higher prices now. Every time something happens in a oil producing region or the sea lanes that link supply and demand, prices go up. I see some double-dipping taking place, too. When the EU agreed to boycott Iranian oil, prices jumped. Now that Iran says it won’t ship to the EU, prices go up again for the same event.
Whether it’s true fear or convenient excuses, the oil markets are flightier than Little Miss Muffet. The ratchet seems to be in action as prices never seem to come down by as much as they go up, except in the case of cataclysmic economic collapse.
@John Burgess: As clearly stated earlier drilling has expanded massively and prices have NOT been affected in any noticeable way. Like others have said we’re actually exporting gas and oil products because of global prices…
@Drew: Coming in three years or sooner to car showrooms: hydrogen powered cars! The big three and other car companies are already testing prototypes. But you don’t have to wait. Thousands of people have built their own hydrogen producing cells and are cutting their gas consumption by 50% or more. These devices can be built for less than $200 with parts that are available at local auto parts stores and home supply stores. They are safe and will have no effect on warranties or emissions (cars will actually run cleaner.) You don’t have to worry about overbearing government regulators or rules. A factory in SC is already using forklifts powered by hydrogen. See for your self by searching “hydrogen powered cars” and:
Money is half of every transaction. Maybe oil prices are rising due to money supply, not oil supply. Now there’s an election issue.
The real problem with increasing production is that it won’t necessarily lower the price. Virtually absent from discussions on oil extraction is ERoEI (energy return on energy investment). At the beginning of the 20th Century we averaged an ERoEI of anywhere from 1 – 60 to 1 – 100, meaning that for every barrel’s worth of energy we used, we extracted sixty to one hundred barrels in return.
But ERoEI at conventional fields in the U.S. has fallen to 1 – 20, and there are no more conventional fields to be had; that’s why we’re looking miles below the surface of the ocean and trying to turn dirt and shale into recoverable oil. Oil from shale or tar has an ERoEI ranging from 1 – 2 to 1 – 6, meaning it’s a lot more expensive. We can turn Canada and the american west into oil production machines and it won’t drop the cost per gallon of gasoline beyond a certain point. That’s exactly why the surging production here in the U.S. isn’t being reflected in fuel prices and there isn’t a damned thing we can do about it.
Look…this a generational issue. We should have started working on it in a serious way in the 70’s and we would be somewhere today. But the naysayers won the discussion. 40 years later we can see they were as wrong about energy and the environment as they were about economics.
There is a choice today. One party is committed to fixing the problem. One is committed to the status quo. History has shown the correct choice. We have already been held back for 40 years by failed ideology. Enough. Let’s move forward and ignore the whack-jobs who want to take the country back…ward.
@guthrum: Guthrum, I don’t care what you’re smoking. You can’t create a hydrogen-run car for $200. You’re either incredibly gullible, or someone who is pushing something you know damn well doesn’t work, i.e., FRAUD.
@Ben Wolf: As I said the other day we have reached peak cheap oil.The tar sands oil in Canada requires $90+ bbl to break even. The deep water wells $70 -80 bbl. What these means is the economic growth we have seen in the past is not something we will see again. WTI was near $106 bbl today.
@grumpy realist: He’s talking about schemes that convert water to hydrogen (and oxygen) using electricity from the car’s battery. The hydrogen is fed into the intake manifold to no effect. Deluded fools can buy instructions for converting their own vehicle and yes, it can be done for about $200.
Ah. Remember the good old days when the reason for high gas prices was oilmen in the White House?
Mythbusters covered this a few years back. Conclusion: Busted
@Ron Beasley: Agreed. Future growth cannot be based on oil reliably, so unless we develop an alternative we’ll be forced to accept some sort of steady-state economic model.
We should have listened to Jimmy Carter, we might have some options. Now we are basically between a rock and a hard place, and all the GOP has to offer is dedication to 19th century technology.
But alternative energy can only supply a small percentage of energy needs…so we must rely on fossil fuels…so we don’t develop alternative energy…so alternative energy can only supply a small percentage of energy needs…so we must rely on fossil fuels…
Oh yeah…and tax cuts for the rich will pay for themselves.
No…people like Jimmy Carter and Al Gore and David Chu are nutjobs…we need to listen to Sarah Palin about energy policy!!!
I’m not sure which is more frightening, Romney saying “Drill, baby, drill!” or Santorum saying it.
I hope Obama does not take the heat for this People have to know it would do him no good to have gas prices soar. If anything the opposite would be true. Notice how Gingrich is cashing in on this one. Saying When he was speaker of the house gas prices were an average of 1.13 a gallon and he would bring prices down to 2.50 if he was elected. He neglects to say how? He reminds me of the old codger who says When I was a kid bread only cost 2 cents. Those days are gone and another thing why does everyone still call him speaker
@mattatat: Yes, US production is not enough, in itself, to have a major affect on global oil prices. Every barrel helps, though, in increasing global supply. If nothing else, it should provide a buffer on price swings.
As I believe I stated, production figures that tend to drive prices downward can be grossly outmatched by speculation intent on driving them upwards.
And… here comes the Obama pandering.
I know this post is behind a few days, but I recall that everytime that Congress threatens an investigtion, the price of gas mysteriously starts falling. I also remember that Nixon made a huge noise about the gas shortage and prices in ’73. Soon, there was plenty of gas and the price went down. Then, all that Watergate junk came out and Nixon was gone.
I would like to know this (and I have never seen this addressed or answered): since these oil companies are making billion dollar hand over fist profits, why do they even need to raise prices? Can they not even afford to eat a 50 cents per gallon loss? I think they have a ton of money and it would just be pocket change to them. I also have read that gas consumption in this country leveled off a few years ago and has declined since then; results of less driving, more fuel efficient green cars, and more people using mass transit. So the gas companies are now punishing us for that! If Truman or Teddy Roosevelt were president, they would get these company executives in line.
They don’t necessarily “need” to raise prices, but the market will bear it so they can. Also, no, they can’t eat 50 cents a gallon loss (at least not for more than a short time).
Gas consumption *in this country* is not the only thing that matters. Global consumption of oil matters. As do other factors (refining & distribution issues, worries over possible war in the ME, speculation but that only matters for short periods of time, gas taxes – which haven’t changed in some time, etc).
Exxon Mobil, whatever its sins may be, is not “punishing” anyone. It’s doing what corporations do: making money selling things to people. Unless they are acting as a monopoly and extracting unfair economic rents (well, they do that somewhat via stuff inserted into the tax code, but that’s another issue), there really isn’t a reason to bring the hammer down on them.
I’m not saying the situation is great. It’s not. But as far as I can see, it’s not the fault of oil companies. It’s mostly just a supply/demand thing.