Monday, February 27, 2012

Regarding Barack Obama and high gasoline prices 

When our president brags about an accomplishment, pay careful attention to the details.

Like most politicians, Barack Obama wants it both ways, in this case to blunt attacks that he is behind high gas prices, while simultaneously appeasing the greenies in his base who want high gas prices. His great advantage is a media with essentially no interest in bringing such inconsistencies to light.

Of course, oil and gasoline prices soared under George W. Bush, too, even as the global economy was sinking hard (see this useful graph), with oil prices surging to almost $150/bbl in the spring of 2008 before plummeting to below $60 in Bush's final weeks in office (run your cursor over the "5Y" to see the longer term):

The surge then could not have been because of Barack Obama's anti-oil environmental policies. More likely, loose monetary policy around the globe drove surplus crash from asset to asset, and commodities, including particularly oil, was one of the places all that money went before the bubble burst in the fall of 2008. See this graph of the Commodity Price Index over the last five years. Based on the 2008 experience, one is forced to wonder whether the recent increases in the prices of oil and other commodities might not primarily be the result of the very loose fiscal and monetary policies championed by the Obama administration. That would make high gasoline prices Obama's fault, if not for the reason conservatives claim.

Anyway, oil and gasoline prices plummeted in the second half of 2008, along with virtually all other asset values, and that left Barack Obama with perhaps unrealistically low prices at the pump at the beginning of his administration. It was a fairly safe bet on January 20, 2009 that rising gasoline prices would be a Republican issue in Obama's re-election campaign.

The other point to remember is that oil prices reflect global supply and demand, but because they are priced in dollars the relative strength of our currency makes a difference for us and others. For Europeans, the price of oil has returned to 2008 levels, but not for us:

With the WTI oil price at around $105 per barrel still well below the July 2008 peak of $147 per barrel it would seem that things aren't that bad. However, that is misleading for two reasons. First of all, despite being misleadingly touted by the financial media as "the oil price", the WTI price has only a limited real world relevance and the more important Brent crude price is at $120 per barrel a lot closer to the 2008 peak.

Secondly, the dollar was much weaker in July 2008 than it is now. At that time, the dollar was trading at $1.60/€, now it is trading at $1.32/€. Thus, while oil is still cheaper to Americans than it was in July 2008, for Europeans it has returned to the roughly €90 per barrel level that we last saw in July 2008.

Point is, I suppose, that all attempts to claim that recent policy decisions have significantly influenced the highly volatile current price of gasoline one way or the other are at best intellectually dishonest, and probably flat-out wrong (which is quite different than supporting the development of domestic oil and natural gas geopolitical reasons, which I do).

Release the hounds. MORE: A reader supplied this useful link on the subject, blaming a decline in refining capacity on the east coast.


By Anonymous Anonymous, at Mon Feb 27, 08:04:00 PM:

Obama is indeed largely responsible for the higher fuel prices. The Bush administration was shamefully weak on the dollar, but Obama policies coupled with the Fed's poisons have greatly weakened the dollar, only the lengthy Euro crisis has kept it from being more evident. Look at some other key commodity prices, compare to aggregate demand, and ask yourself how those prices are sustainable?

Easy, they are sustainable because the dollar has been undermined by both fiscal and monetary policy. Nobody in the Obama administration has ever spoken up in even a ritual sense to make the case for a strong currency.  

By Anonymous Anonymous, at Mon Feb 27, 08:17:00 PM:

Yeah, Obama's anti-oil environmental policies are so far out of whack that we're exporting more oil than we import for the first time in 60 years!. How could he let that happen?? Oh, wait...  

By Blogger MTF, at Mon Feb 27, 09:33:00 PM:

Anonymous points us to a WSJ article, as evidence for his claim, expressed inversely for sarcasm,

"Yeah, Obama's anti-oil environmental policies are so far out of whack that we're exporting more oil than we import for the first time in 60 years!. How could he let that happen?? Oh, wait..."

But Anon has reading comprehension issues. The article has nothing to do with "oil environmental policies"; it concerns the export of gasoline, jet fuel, diesel fuel and the like. It seems that American demand for refined fuels is so low, thanks to the lousy Obama economic policies, that we are exporting these products (rather than importing) for the first time in 62 years.


By Blogger cruiser, at Mon Feb 27, 11:15:00 PM:

Ironman at Political Calculations has an interesting take on it:

By Anonymous Anonymous, at Tue Feb 28, 11:53:00 AM:

"drove surplus crash from asset to asset,"

hahaha, boy you got that right!!  

By Anonymous Anonymous, at Tue Feb 28, 12:13:00 PM:

Obama was not joking when he indicated he wanted substantially higher energy prices. High prices for essentials--food, energy, housing, health care, etc., are all part of the Democratic Party's three step plan:
1. Increase resource prices through regulation and government-enforced scarcity
2. Socialize the market to foster dependency on the government
3. Use government benevolence as leverage to win votes.

The degree to which the government provides the basics of existence for America's lower income citizens is astounding: food provided by food stamps and subsidized school meals, housing by section 8, energy assistance, medicare, medicaid . . . The list goes on an on.

When Colorado went Blue one of the first things the Democratic legislature did was to ease eligibility requirements for Medicaid and to allow applicants to self-attest that they were citizens and therefore eligible. Medicaid ranks and costs exploded --Medicaid costs now consume approximately 20% of our state budget.

The next item on the agenda was to provide subsidized breakfasts to low income students, which I generally support.

Next up was a genius air quality plan to force Excel Energy to close it's coal-burning plants and replace them with gas burning plants. Electricity costs are up by about 60% since the state went Blue. The PUC Commission then socialized the market by implementing a tiered rate structure in which the first X KW hours are priced at less than market rates and the second Y KW hours are priced at well above market rates, such that high users of electricity (read: upper income) subsidize low users (read lower income) of electricity. They tried to push through a plan to make LEAP "contributions" mandatory, but thankfully it failed.

Thankfully, the gasoline market is global and will be difficult for Democrats to socialize. Keep your eyes on the mileage tax movement.  

By Blogger MTF, at Tue Feb 28, 12:30:00 PM:

It seems that, while the number of refineries operating has declined about 20% from the 2008 peak, actual refining capacity may have increased (I say "may" while the CRS report says it has, but the report is over a year old), so the decline in refineries operating may not have the strong impact suggested at the link.

Lots of factors are at work, and I am trying to list them (feel free to add-on or correct my list) so we can figure out a view: 1) increasing global supplies of raw feedstocks, both oil and nat gas (used to run refineries), ought to work to lower prices; 2) lower demand for product in the US and around the world, ought to work to lower prices; 3) geopolitical concern, ought to raise prices; 4) worldwide economic fear factor raising value of US dollar, ought to lower prices; 5) pipeline capacity from Cushing to Texas refineries is constrained, ought to raise prices; 6) seasonal switchover from winter fuels to summer blends, a traditional time for refinery maintenance, ought to be pushing winter supplies out now (lowering pump prices) to be quickly succeeded by increasing costs due to summer supply constraints...

I'm inclined to think that, of all the issueson the list, geopolitical concerns are having the most impact. What do others think?  

By Anonymous Ignoramus, at Tue Feb 28, 07:27:00 PM:

“Under my plan energy prices would necessarily skyrocket” (Obama Jan 2008)

In the first half of his first term, Obama controlled Congress. Despite this, he wasn’t able to get Cap and Trade through, because it was such an overreach.

But he’s been pursuing its deep objectives through other means and will continue to. Higher energy prices is an end.

In 2008, America elected a Man with a Plan. Most Americans only understand this dimly, or not at all.

Now that he’s close to an election, Obama is doing his best Obi-Wan-Kenobi, whispering “These aren’t the droids you’re looking for.” Lots of folks fall for it, MSM included.

Once again, Obama is using a co-ordinated media campaign, including surrogates.

E.g. Chuck Schumer suggesting today that the Saudis should spread oil to calm troubled Iranian waters, by promising they’ll replace barell-for-barrell any shortfall from Iran. Subtext is that it’s the Saudis fault for not doing the right thing.

Granted, oil prices are driven by lots of factors not all within a President’s control. But Obama has done a lot to jack prices.

The single biggest factor is out-of-control federal spending and Ben Bernanke’s printing press: Oil is going up for the same reason that gold is going up.

Am I wrong?  

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