All gassed up about gas prices
President Barack Obama announced over the weekend that the Justice Department has created a task force “with just one job: rooting out cases of fraud or manipulation in the oil markets that might affect gas prices.”
Oh great. That should provide scant comfort to consumers who are seeing gasoline prices soar toward $4 per gallon (they’re already beyond that in some locations) just as the summer driving season is upon us.
It’s a typical political reaction to rapidly rising gasoline prices, although more often, it’s a congressional one. Here’s how it usually works:
Gas prices skyrocket. Someone in Congress announces hearings. Oil company executives and Wall Street commodities brokers are paraded before the committee. They are pilloried for being heartless capitalists making obscene profits. But virtually no evidence of conspiracies, price-fixing or supply manipulation is ever revealed.
The president’s prescription for dealing with rising oil prices also included ending taxpayer-subsidies to oil companies and boosting clean energy, which may have value in their own right, but will have no impact on current gasoline prices. It was clearly a distraction by Obama.
Of course, the president and fellow Democrats aren’t the only ones guilty of using rising gasoline prices to attempt to further a political agenda.
Consider the Domestic Jobs, Domestic Energy and Deficit Reduction Act of 2011, introduced in Congress this spring by Republican Rep. Rob Bishop of Utah and Sen. David Vitter of Louisiana. Among other things, it would require the federal government to speed up leasing lands for oil shale development. But even its most optimistic boosters acknowledge commercial oil shale production is a decade or more away. It won’t have any significant impact on oil and gas prices before then.
Meanwhile, Obama can legitimately claim that domestic oil production actually increased in 2009 and 2010, but that was largely from wells already permitted and in operation. Many experts fear Obama administration policies will result in a long-term reduction in U.S. production.
For instance, Joseph Mason, a financial expert with both Louisiana State University and the Wharton School of Business, writing in The Wall Street Journal, said at least seven deep-water oil rigs have left the Gulf of Mexico in the wake of Obama’s six-month moratorium on new permits, followed by a definite slowdown in the permit process after the BP oil spill a year ago. Some are leaving the Gulf for foreign waters, Mason said.
Additionally, a recent ruling by Obama’s Environmental Protection Agency forced Shell Oil this week to abandon plans to drill for oil off the northern Alaskan coast, according to Fox News. Shell has spent five years and more than $4 billion developing the offshore leases.
The Bishop-Vitter bill attempts to force agencies such as the EPA and Interior Department to take a more reasonable approach to energy development, something that is needed and could help prevent future spikes in gasoline prices.
But for now, experts point to a variety of factors currently driving up gas prices.
First, demand has increased as the global economy slowly climbs out of the recession of the past three years. People are feeling more confident and are driving more. Oil is also being used in more industrial applications.
And, although U.S. oil supplies had been holding their own, a U.S. Department of Energy report released last week said they have begun to decline.
Additionally, unrest in the Middle East, from Egypt to Libya to Syria, has disrupted global supplies and driven up futures prices for oil as investors fear the political situation will get worse.
Finally, the weakening U.S. dollar, driven down in part by Federal Reserve policies, means the prices of commodities such as oil have increased for U.S. buyers.
But those aren’t the kinds of things politicians looking for easy scapegoats are eager to discuss.