Voters blame president for gas prices, experts say not so fast
By Steven Mufson, Published: March 12, 2012
How much does the president have to do with the price of gasoline?
A lot, say American voters. According to oil experts and economists, not so much — at least in the short term.
Today’s
oil prices are the product of years and decades of exploration,
automobile design and ingrained consumer habits combined with political
events in places such as Sudan and Libya, anxiety about possible
conflict with Iran, and the energy aftershocks of last year’s earthquake
in Japan.
“This notion that a politician can wave a magic wand
and impact the 90-million-barrel-a-day global oil market is
preposterous,” said Paul Bledsoe, strategic adviser to the Bipartisan
Policy Center and a former Clinton administration official.
The
price of gasoline is a hardy perennial in presidential campaigns. Jimmy
Carter struggled with high gas prices, which had doubled since the
Iranian revolution. And during the 2008 presidential race, Barack Obama
said in a campaign speech that “here in Ohio, you’re paying nearly $3.70
a gallon for gas — 2
1
/
2 times what it cost when President Bush took office.”
On
Monday, President Obama defended his energy policy in a flurry of
interviews with swing-state TV stations while GOP hopefuls Newt Gingrich
and Rick Santorum stumped at an energy summit in Biloxi, Miss. “If we
want to create lower prices for energy, we know how to do it — now,”
Santorum said. White House spokesman Jay Carney fired back, blaming
factors “well beyond the control of any administration.”
What can
the president control? This year, Republicans are saying Obama has not
done enough to promote domestic drilling, but the U.S.
drilling-rig count
is twice as high now as it was in 2009. 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 White
House frequently points to the increase in domestic oil production when
talking about what it calls its “all of the above” policy to develop
myriad sources of energy. But that is a result of new drilling
techniques, the lure of high crude prices, and offshore projects that
began before Obama entered the White House. Shell, for example, began
oil production in the Gulf of Mexico from its Perdido platform during
Obama’s term; it bought
initial leases in the area in 1996 and began commercial development in 2006.
“Everyone
takes credit for what’s on their watch,” said Frank Verrastro, director
of the energy program at the Center for Strategic and International
Studies.
(Related: A rule of thumb for gas prices and the economy)
U.S. policy makes a difference, energy experts say, but with a
long delay, whether it is a matter of drilling for more oil or
increasing the fuel efficiency of the automobile fleet, which takes a
decade or more to turn over.
“There is a substantial time lag
between the adoption of energy policies [on the demand and supply sides]
and their impact on the market,” said Jay Hakes, a former administrator
of the Energy Information Administration and now director of the Jimmy
Carter Library and Museum. “George W. Bush deserves some credit for
signing the 2007 legislation that has helped the current situation from
getting worse, but [he] will never get any credit.”
Hakes said
that “Obama is on a good path to ease future markets.” He cites the
president’s decisions to open new areas for exploration and development,
most notably Alaska’s Arctic coasts, and to deal aggressively with oil
demand by raising efficiency standards for automobiles.
That hasn’t stopped Republican leaders — and voters — from blaming Obama for pump prices that have
climbed to $3.80 for a gallon of regular gasoline,
according to AAA. The 29.5-cent-per-gallon increase in the past month
would, if sustained, wipe out a quarter of the effect of the payroll tax
cut, siphoning off money that consumers might have spent elsewhere.
Even if voters didn’t blame Obama directly for the increase, a slower
economy might still hurt his reelection prospects.
Perhaps no
politician has done more to put the onus on the president than Gingrich,
who says he has a plan to reduce gas prices to $2.50 a gallon and
offset the loss of output that might result from an attack on Iran,
which exports about 2.5 million barrels of crude oil per day.
“There’s
no way we could increase production that much,” said Verrastro of the
CSIS. “But the facts be damned. It’s election season.”
As for lowering U.S. pump prices, that would require lowering world crude oil prices. Crude oil
accounts for about three-quarters of the cost of
a gallon of gas at these price levels, according to the Energy
Information Administration. By comparison, taxes account for just
12 percent, refining about 6 percent, and distribution and marketing
about 6 percent.
The international oil market has tightened, not
because of a single factor such as U.S. drilling but because a series of
crises has shaved oil production or boosted demand worldwide. Together
they add up to a difference of about 1 million barrels a day in the
global oil balance.
In the wake of a tsunami and earthquake last
year, Japan has closed down virtually all of its 54 nuclear power plants
and has been burning more oil to generate electricity; its power sector
is using 320,000 barrels a day more than before the disasters,
according to the
International Energy Agency.
In
Sudan, bickering between the north and the south and a dispute over
pipeline revenue have choked off about 240,000 barrels a day, the IEA
said. Unrest in Yemen and Syria knocked out about 100,000 barrels a day
each. Libya’s output is recovering from last year’s civil war, but at
1.3 million barrels a day, output is still about 300,000 barrels a day
short of capacity, traders say. And as a result of maintenance problems
in the North Sea, Norwegian and British output is running about 160,000
barrels a day lower than normal, the IEA added.
In China, economic growth has slowed, but the IEA still expects demand to climb by 400,000 barrels a day.
This
year, global oil demand will hit 89.9 million barrels a day, the IEA
says, shrinking the spare production capacity to a level lower than
Iran’s exports. That has spooked oil traders and refiners. Because oil
products are so essential to companies and motorists, incremental
changes in the supply-and-demand balance have a relatively large effect
on prices.
Are speculators the problem? Traders magnify the size
and speed of price movements, even if they don’t alter the direction.
Large speculators are holding record-long positions in gasoline — which
pay off when prices rise — and near-record-long positions in crude oil,
notes Ed Yardeni, president and chief investment strategist at Yardeni
Research. By buying these stakes in the market, they drive up prices
now.
U.S. refinery maintenance is often blamed for gasoline price
jumps, but crude oil prices have been high in Europe and Asia as well
as in certain regions of the United States.
One thing a president can do is to
release oil from the Strategic Petroleum Reserve
that is kept in giant salt caverns near the Gulf of Mexico. That has
happened three times — at the outset of Operation Desert Storm in 1991,
after Hurricane Katrina swept through oil production and refining
facilities in the Gulf states in 2005, and during the Libyan civil war
in 2011. In 2000, President Bill Clinton ordered a swap of oil from the
reserve, letting refiners give the oil back in 2001.
But oil
experts are divided about the impact of such a release. In the past, SPR
releases have lowered prices, but only temporarily. Moreover, the
696-million-barrel reserve — which could, for example, offset a 280-day
suspension of Iranian oil exports — is an emergency stockpile for supply
disruptions, not a device for blunting price increases.
Other
issues have been raised that have little or nothing to do with current
gas prices. Approving the Keystone XL pipeline, rejected by Obama with
its current route and highlighted by Gingrich on Monday as a useful
move, would not add to current oil supplies; it would only add to the
excess pipeline capacity from Canada that is expected to last until
2016. Renewable energy such as wind and solar makes the electricity grid
cleaner but has nothing to do with oil prices. Electric cars could
help, but it is likely that their sales figures will fall short of
administration goals. And higher U.S. production will cut U.S. oil
imports and ease the pressure on global demand, but the United States
will remain a major oil importer for many years.
Said Verrastro: “We need a reasoned debate based on facts, but that’s not the climate we’re in, unfortunately.”
Staff researcher Lucy Shackelford contributed to this report.
-
Rule of thumb for gas prices, economy
-
Putting high gas prices in context
- Why gas prices aren’t likely to sway the election
How much do we really spend on gas?
Gas
prices are spiking, and a new poll found that seven in 10 of us find
the issue very important. For some, it definitely is — long-distance
commuters and makers of gas-guzzlers, for instance. But for most of us, a
bigger number on the pump makes only a small dent in our annual
expenses.
Gas prices through history
Adjusting gas prices for inflation shows that prices have spiked before.
Gas spending and household budget
While the we may be paying a bit more, the portion of income spent
on gas remains a relatively small percentage.
How spending compares
Even
during the last peak in 2008, spending on gas was just above 4 percent.
Gas spending has stayed pretty consistent as a portion of total
spending.
Oil consumption in the future
U.S. energy consumption is projected to grow for at least two decades, and oil consumption is expected to remain steady.
NOTE: Charts may not add up to 100 percent because of rounding.
SOURCE: U.S. Bureau of Labor Statistics; U.S. Energy Information Administration; Department of Energy.
GRAPHIC: Bonnie Berkowitz and Laura Stanton - The Washington Post. Published March 13, 2012.