Driving the politics out of gas prices
By Charles Lane,
Gas may be getting expensive, but talk is still cheap. So politicians are responding to the latest spike in petroleum prices as they always do: with a barrage of partisan accusation that has much more to do with exploiting the issue than addressing it.
Republicans say prices are high because President Obama nixed the Keystone XL pipeline and didn’t open enough federal land and coastline to oil drilling. “There are no short-term silver bullets when it comes to gas prices,” Obama responded in a speech last week. “And anyone who says otherwise is just not telling the truth.”
Obama’s absolutely right about that. But I’d have more sympathy if he and his party had not played the same demagogic game against the Republicans in 2007 and 2008, or if he weren’t recycling the usual Democratic attacks on oil-industry tax breaks.
Those industry loopholes are hard to defend on tax-efficiency grounds; but since they subsidize supply, their effect, if any, on gas prices is to reduce them. The president went on to tout a $14 million federal grant to help make fuel from algae. That particular miracle’s been just around the corner for decades now.
Please, everyone, just ignore this blather. Here’s what is actually going on: World crude oil prices determine the vast majority of the per-gallon price of gasoline — 76 percent of it, according to the U.S. Energy Information Administration. Those prices have been trending upward for more than a decade, largely because of surging demand in China and other emerging markets. Gas prices have followed suit.
Crude, and gasoline, prices crashed when the world economy crashed — at about the time Obama took office in January 2009. But they resumed their upward march shortly thereafter.
Republicans cry: “Aha! It is his fault!” In fact, higher crude prices reflect the recovery in global demand, which is good news: a result of economic recovery more generally.
In fact, without those higher crude prices, there would have been less incentive for U.S. entrepreneurs to invest in fracking technology and produce the extraordinary new sources of shale oil in North Dakota and elsewhere that are creating jobs and wealth, and gradually liberating the United States from foreign sources of supply.
Federal Reserve policy probably has something to do with higher oil prices, too. Since the Fed’s zero percent interest rate cheapens the dollar, it takes more dollars to buy the same amount of oil and other commodities.
Gas prices are subject to seasonal and other variations. They “rise in the first half of the year,” i.e., about now, “plateau during the peak summer driving season and retrace most of the earlier gains in the back half of the year,” Deutsche Bank’s US Economics Weekly explained Feb. 24. This is because of refinery maintenance schedules, the annual shift of production to warm-weather fuel “blends” and other technical factors.
Despite all the howling, this February “is only moderately ahead of the usual seasonal trend,” Deutsche Bank reports. That modest increase is probably due to market nervousness about Iran and the long-planned shutdown of three refineries along the U.S. East Coast, says Tom Kloza, an expert on gas prices at the Oil Price Information Service.
On his blog, www.speakingofoil.com, Kloza predicted the current run-up in gas prices almost to the day. He’s also predicting that regular unleaded will peak around $4.25 per gallon in late spring, before drifting below $3 by the second half of the year — barring a cataclysm in the Middle East.
When prices go back down, Obama will neither get, nor deserve, any credit — any more than George W. Bush did when prices sank from their various peaks while he was president.
The truth is that American motorists are caught up in a vast global market for energy whose cyclical forces of supply and demand are more important than the short-term policy choices of the U.S. government.
Yes, we probably can, and should, pump more oil out of our federal lands and offshore. But we can’t just ignore the risk of oil spills. Anyway, to the extent more drilling increases the supply of oil, it will also moderate prices — and reduce the incentive to drill.
Yes, we should experiment with oil-from-algae schemes and the like. But the era of cheap, abundant energy from non-fossil fuels is still many years away — and anyone who suggests otherwise is not telling the truth.
As gas goes up and down, motorists just have to grin and bear it. If only politicians wouldn’t compound the pain by insulting our intelligence.