Angry about gas prices?

In April the GOP theme was clear: blame Obama for high gasoline prices!

Probably not.   If you’re like me, you’ve been watching them fall daily, from a high of $4.00 per gallon in early May to $3.55 in Farmington today (down from $3.59 yesterday).    Yet it wasn’t that long ago that Republicans from Mitt Romney to John Boehner eviscerated President Obama on high gas prices.   They rose because of his policies towards oil companies, his foreign policy, or the lack of domestic drilling.

But, Democrats complained, the President doesn’t control gasoline prices?   Hogwash, was the reply – Obama’s policies are one of the main reasons that they are high — and look for them to get higher this summer!

So what happened?

To be sure, some media sources blamed Obama more than others!

Remember back in 2008 when the economic crisis hit energy prices went way down.    Within less than a year we fluctuated from $160 a barrel to $35 a barrel.   The reason is simple:  oil supplies are pretty stable in the short term, and demand is generally price inelastic.    This means that if demand exceeds supply at a particular price, large price increases are necessary to reach a new equilibrium point.   In the booming economy of 2006-07 oil demand world wide went up, while supplies could not increase.   The result – a spike in oil prices.

To be sure, speculation did accentuate that, but that speculation was based on a belief that demand would continue to exceed supply and oil prices would continue to rise.    Of course, if demand falls dramatically, the opposite happens — oil prices go way down.   Unless supplies are cut, a drop in demand can mean a steep drop in price to reach a new equilibrium.

This graph was from March – from a guy named Andrew Butter on the investment website ‘seeking alpha’ – predicting the oil bubble would pop

Perhaps what we saw earlier this year was an increase in oil prices due to a belief that economies were starting to move out of the recession and that oil demand would again increase.   Add fear of a war with Iran (fears which have seemed to subside since then) and its not surprising that oil again went above $110 a barrel.

However, now it’s down to $85, and seems to be settling in at that price.   Yet all the people who were blaming Obama for price increases are not crediting him with bringing the price down.   Clearly that was an opportunity attack – if something goes wrong, anything, blame the President.   If it starts going right, look the other way.

To me the question becomes: are we in a cycle whereby every time the economy starts to show life, oil prices will rise, ultimately stifling the economic progress?   With lower oil prices we might get another burst of economic growth in the second half of 2012 — perhaps leading to another jump in oil prices which thwarts the recovery.

If so, we’re in a conundrum that requires either increased oil supplies or an increase in the use of alternative energy sources.   Unfortunately, it doesn’t look like oil supplies with increase soon.

Despite a slow economy, oil demand appears certain to keep rising, while new discoveries decline.

In Europe, there has been an intense effort to invest in wind turbines, solar panels, and a variety of other sources.  The Europeans say the future is with electricity, and they are bent on discovering how to efficiently generate electricity without fossil fuels.   They’ve made a lot of progress, which is why they were able to meet the Kyoto accord goals.

Some might point to natural gas and oil shale development in the US and Canada.   Those sources could potentially add to the oil supply, but on a time frame out that is too long to help in the near term.

This means that as we work through the financial problems, the debt crises in Europe and the US, and all the concerns about infrastructure and economic rebalancing, energy is a main barrier to change.   The last century was the century of cheap oil, our lifestyle, our global population boom, our expectation for easy access to goods from all over the world was built on cheap oil.   We’ve electrified and powered every aspect of our lives, from our homes to our appliances, lawn mowers and tools.

If the era of cheap energy is ending, our economy will never get to what one would have in the past called “normal.”    We’re destined to years of economic malaise, only to end when we both work through the debt crises, get banks back under control, and find a way to keep energy costs down.    We should be investing in all sorts of alternatives, like the Europeans are, but instead our stagnating, with Congress unwilling to act, and politicians enamored with a failed “free market” fantasy that markets can magically take care of everything.

Indeed the future might be won by whoever develops sustainable alternatives first and adapts their economy to use them.   In that, we’re already way behind.

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  1. #1 by lbwoodgate on June 7, 2012 - 06:27

    Nice layout on this Scott. Blaming Obama for oil prices because of his policies was a canard from the git go. The policies that Repuiblicans were accusing Obama of that effected high gas prices was his reluctance to increase oil production, always pointing to places that have been typically off limits like ANWR. The fact is though oil production has never been stifled under this president except for the brief moratorium following the BP oil spill in the gulf. Production is at an all time high.

    This fallacy also shows that just because we have extra sources of oil doesn’t mean it benefits us directly. Oil is global and the global markets determine where it goes and how it’s priced.

  2. #2 by Alan Scott on June 7, 2012 - 11:56

    lbwoodgate ,

    Up is down, down is up, left is right, right is left. The distortions here are large. These things are not hard to understand if you are not blinded by ideology . Oil is down simply because the world economy is nose diving , , , again . Amazing how you can fix things like energy prices and illegal immigration by destroying economies . Oil will increase in price if the world economy picks up . That it is down shows things are going in the wrong direction .

    Oil production under President Obama is going up in spite of him, not because of him . Everybody knows he has done everything he can to sabotage oil production . Everybody except those here . It’s amusing how high gasoline prices were George W. Bush’s gifts to his oil buddies 4 years ago . Now suddenly you believe in world markets .

    • #3 by Scott Erb on June 7, 2012 - 12:26

      Alan, you’re being absurd. To claim that Obama is sabotaging oil production is a kind of Goebbelesque claim, totally preposterous. It’s also absurd to claim that high oil prices in 2007-08 were Bush’s gift to his oil buddies. I think you’ve been smoking the partisan weed a bit too much and have to try to look at the world through a more objective lens.

      • #4 by lbwoodgate on June 7, 2012 - 12:30

        Thanks Scott. I wasn’t going to waste my time with his silliness.

  3. #5 by Alan Scott on June 7, 2012 - 16:27

    Scott,

    Did your guys not claim that Bush was responsible for high oil prices? That it was his gift to his oil buddies ? Was this not a main reason Barak Obama was elected President, because Americans were mad at the oil companies ? Or do you remember it differently ? Has President Obama not totally stalled and blocked oil exploration and production on Federal land ? Has not the entire increase in US oil Production been on private and State lands ?

    I do not smoke the weed . I drink the partisan brew . Now as always, prove me wrong .

    • #6 by classicliberal2 on June 8, 2012 - 00:45

      “Has President Obama not totally stalled and blocked oil exploration and production on Federal land?”

      No, as a matter of fact, he hasn’t. The Obama administration has, in fact, overseen a massive expansion of oil from federal lands. This had declined nearly every year of the Bush administration. Under the Obama, by contrast, it has increased every year.

      If you include federal waters, there was a one-year drop in the last year. This is what Karl Rove, whom you’re merely parroting, misrepresented as a drop in oil from federal lands.

      When one uses the combined figures of oil from federal lands AND waters, oil production declined 4 of the last 5 years of the Bush administration. Under the Obama administration, it has not only gone up, but has gone up radically–nearly 12% in his first year and nearly 15% in his second. It dropped only in the last year, and that drop–it went down nearly 14% below the highs established in the previous years–was entirely a consequence of the post-BP moratorium (if you exclude federal waters, which were affected by that moratorium, production on federal lands actually rose that same year, as it has every year under the Obama, up 3.7% in this case).

      Your larger charge:

      “Oil production under President Obama is going up in spite of him, not because of him . Everybody knows he has done everything he can to sabotage oil production.”

      The results of his “sabotage”: his administration has, in fact, overseen a massive expansion of oil drilling in the U.S. The number of active rigs, here, is now more than double what it was in 2009:

      As the Washington Post reported (12 March, 2012), “with the exception of a spike in 2008, the current rig count is higher than any year since the early 1980s, according to figures compiled by WTRG Economics.” The Energy Information Administration reported, a few months ago, that domestic crude production, which had been dropping since 1986, has been on the rise, and was higher last year than it had been since 2002.

      Speaking more generally, supply and demand has virtually nothing to do with gas prices in the U.S. It’s one of the best-kept secrets among the press, but there is a glut of gasoline on the U.S. market, so much so that the U.S., for the last few years, has sold more of it abroad than it has imported. At the same time–repeating a pattern all too familiar with the half-dozen of us who actually bother to follow such things–demand for gas in the U.S. has dropped for years. SpendingPulse, which tracks retail sales data for MasterCard, reports that U.S. demand has dropped from 9.5 million barrels/day in 2007 to 8.5 million barrels/day so far this year. The Energy Information Administration reports that, while U.S. demand for gasoline this summer is projected to be at an 11-year low, the price of gasoline is expected to stay high. Supply up, demand down, yet U.S. prices soar.

      So what IS at work, here? Part of it, as Scott notes, is the price of crude, which is set on a world market.

      There’s more to it than that, though.

      There’s blatant profiteering by the oil companies–they turn in record or near-record profits every quarter.

      And there’s speculation in the commodities market by Wall Street firms. Whereas a little over a decade ago, around 70% of those involved in the oil futures market were people who actually used gas, today, 81% of it is speculation by financial institutions, who use no gas at all, but rake in big profits by driving up the price of it. Various estimates have placed the amount of the price at the pumps attributable to speculation at 30%-40%.

      In what I’m sure is entirely a coincidence, gas prices in the U.S. have, for years, closely tracked the political fortunes of the Republican party, which the oil industry owns. The reign of the Man From Oil saw the industry acting like a pack of money-mad pirates, gas prices rising to $4.12/gallon (higher in many areas), while the industry turned in the largest profits in human history quarter after quarter. After the Obama and the Democrats took over, gas prices stabilized–for the first 2 years of their rule, it stayed between $2.50 and $2.86/gallon. It was only when Republicans recaptured the House after the 2010 elections (the House being where any congressional action must start) that the prices began to explode again–from $2.81/gallon to $3.96/gallon by May. They dropped after that, but the lowest they’ve gone while Repubs have controlled the House was a brief stint at $3.22/gallon in December. It’s floating around $3.50/gallon, now (even with the Republican House, prices have never gone as high as under the Bush administration).

      The Center for Responsive Politics reports that 75% of total oil contributions, since 1990, have gone to Republicans; over 80%, since 2000, have gone to Repubs; in the current election cycle, 88% has gone to Repubs. Even as these companies turn in, ever quarter, massive profits, congress can’t even end even a fraction of the subsidy they receive from the U.S. government because of Republicans.

      In the real world, a vote for Republicans is a vote for skyrocketing gas prices, but the fact that Democratic rule = lower prices (in non-election years) should NOT be interpreted as a positive comment on the Demos. Oil is an extremely partisan industry, overall, but it buys Demos in oil states and on key committees, just as it does Repubs in general. Oil bought a big piece of the Obama in 2008, too, which is why he’s been so friendly with them, but they’d always prefer a Republican–they gave more to McCain the last time around, and in the current election cycle so far, Obama is way down at #14 among recipients of oil largess–several GOP HOUSE candidates have gotten more. One party is owned by oil, but both have people owned by it.

  4. #7 by Scott Erb on June 7, 2012 - 17:05

    I never claimed Bush was responsible for oil prices being so high. On the third day of my keeping this bog (May 12, 2008) I wrote about high oil prices — note that Bush’s name isn’t mentioned: http://scotterb.wordpress.com/2008/05/12/oil-uncertainties/ I actively argue against those who say oil companies were simply gouging customers a week later: http://scotterb.wordpress.com/2008/05/22/oil-denial/

    I don’t believe Obama has stalled oil exploration – it’s hard to claim that when exploration is up. You’d need to support such a claim with real evidence. I’m sure he’s not allowed exploration everywhere, but neither did Bush nor any other President.

  5. #8 by Alan Scott on June 8, 2012 - 00:54

    I never said you, I said your guys . You want proof . Where do I start ? Maybe here .

    http://naturalresources.house.gov/Issues/Issue/?IssueID=15410

    • #9 by Scott Erb on June 8, 2012 - 16:05

      I think classicliberal’s data trumps yours. Every President’s administration approves, refuses and delays permits. If one wants they can always put together a list of delays or denials and make it seem like that’s all any President does. After all, if it went down during the Bush years and up during the Obama years, it’s really hard to say Obama is stalling!

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