When something unpleasant happens, it’s helpful to have a
scapegoat, and when there’s an economic crisis during a presidential re-election
campaign, assessing blame is campaign strategy. With the recent rise in
gasoline prices, the finger-pointers have been giving their digits a vigorous workout
telling us who they want you to believe is responsible for the rising gas
prices.
Blaming oil companies or speculators or George W. Bush may make
people feel better about something they can’t control, and put political points
on the board, but those things aren’t the problem. These price increases are a
matter of basic economics, magnified by foolish energy policies.
Before the financial crisis hit in 2008, the price of West
Texas Intermediate reached its high on July 14 at $145.16, and average gasoline
prices reached their high the same day at $4.05 per gallon. The downward economic
trend thereafter pushed oil down to $30.28 a barrel and pushed gasoline prices to
an average low a week later at $1.59 per gallon.
As world economic growth picked up, so did oil prices,
reaching a high of more than $109 a barrel last Friday, and gasoline prices also
hit a recent high of over $3.60 a gallon. However, the change in both oil and gasoline
prices fairly closely parallel world GDP growth.
Oil is the biggest factor in the cost of gasoline. John
Felmy, chief economist at the American Petroleum Institute, explained last week
that “when crude is at $100 for a standard 42‐gallon barrel … a refiner pays
almost $2.40 for each gallon of that crude to make a gallon of gasoline” that
is priced around $3.60 a gallon. “The next biggest component is taxes,” he
continued. “They now average almost 49 cents a gallon, including federal, state
and local taxes.” Crude oil and taxes comprise $2.89 of the cost per gallon of
gasoline, more than 80 percent.
Further, he reports “crude oil prices are up because of
supply and demand. World demand for crude is increasing as the economies of the
world begin to recover, and the world’s excess oil production capacity is
shrinking. Buyers of crude oil also are clearly concerned about the instability
of major oil producing nations in North Africa and the Middle East.”
Some criticize oil companies for exporting fuel overseas.
However, the weak economy and more efficient vehicles have left the US with a
surplus of fuel; hence there is excess product that must be sold somewhere else.
Exporting unsold US supplies keeps Americans working, many at good paying US
refinery jobs, and also lowers the trade deficit. There are 9.2 million jobs in
the oil and natural-gas industry in this country, and it accounts for 8 percent
of GDP and is responsible for 78 percent of total domestic energy production. Imagine
where those numbers would be if the Obama administration wasn’t committed to
killing traditional American energy production.
Some think that “big oil” is greedy. Profits reached a high
in 2008 of 10.12 percent, and have been 5.46 percent, 6.56 percent, and 7.31 percent
since. If your company is making only six to 10 cents on a dollar of
investment, that ain’t greedy, folks.
All of this is academic where President Barack Obama is
concerned. Whatever complaint he may voice over gasoline prices is really just “gas,”
because high prices are precisely what he wants. As long as traditional energy
and traditional motor vehicles are affordable and popular, the green energy-driven
nation that Mr. Obama obsesses about will not become reality.
In 2008 Steven Chu, who is now Secretary of Energy, said: “Somehow,
we have to figure out how to boost the price of gasoline to levels in Europe.”
Mr. Chu and his boss think that ideally Americans ought to be paying around $10
a gallon for gasoline. And President Obama himself stated that a gradual
increase to European levels would be a good thing.
Toward that end, a new Environmental Protection Agency
proposal requires the sulfur content in gasoline to drop from 30 parts per
million to 10 parts per million, and according to a letter to EPA Administrator
Lisa Jackson from six US Senators (4 Republicans, 2 Democrats), this mandate will
raise gasoline prices by 12 to 25 cents a gallon. The dream of European fuel
prices gets a little closer to reality.
Democrat National Committee chair Rep. Debbie Wasserman
Schultz (D-FL) said recently that “the Republican field … thinks that we just
need to remain tethered and dependent on foreign oil because all they would do
is more and more drilling.” This Alice-in-Wonderland assessment assumes that drilling
for our own oil will keep us dependent on foreign oil. So much for Democrat
energy policy.
Oil production has increased of late, “higher than it's been
in eight years," the White House boasts. But this occurred in spite of,
rather than because of, the Obama energy policy. Remember that Mr. Obama declared
most offshore areas off limits, substantially decreased oil and gas leases in
the Rockies, and rejected the Keystone XL pipeline. The increase in production
comes from wells on private property where Mr. Obama cannot stop it, and that production
began under George W. Bush.