President Obama seems to be enjoying some good luck in that the economy appears to be picking up just in time for his re-election campaign. While the economy is still weak by almost any measure, growth is likely to be in the 2.5-3.0 percent range for 2012. This should lead to the creation of close to 2 million jobs and a modest drop in the unemployment rate.
That is not much to cheer about in an economy that is still down close to 10 million jobs from its trend level; however, compared to the recent past, this is good news. And research shows that voters tend to focus primarily on the direction of change. This means that if the unemployment rate is falling and the economy is creating jobs at a respectable pace throughout the year, President Obama stands a very good chance of being re-elected in November.
This explains the decision of the Republican Party to focus on the price of gas. The price of gas has long played a pivotal role in U.S. politics. High gas prices will be forever a symbol of the economic malaise of the Carter presidency in the late '70s. The drop in gas prices under President Reagan was associated with a resurgence of America's political and economic power.
The fact that both the rise in the price of oil in the '70s and the subsequent decline in the 80s had little to do with domestic policy decisions and much more with international politics (e.g. the Iranian revolution in 1979) mattered little. President Carter got the blame for events beyond his control and President Reagan got the credit.
The Republicans are hoping to benefit from this pattern again in the fall election. Gas prices had plummeted following the economic collapse in 2008, falling as low as $2.00 a gallon, half of their pre-recession peak. However, in the last two years they have been on the rise as the world economy recovers and instability in the Middle East and the possibility of a war with Iran threaten the oil supply from the region. Gas prices are almost certain to soar past $4.00 a gallon in the peak summer driving season.
The Republicans are hoping to blame this rise in the price of gas on President Obama's environmentally friendly policies. As a matter of logic, there are two basic problems in this story. First, President Obama's policies have not been especially friendly to the environment.
He has opened up large portions of previously protected coastal areas to drilling. Oil production has risen substantially in his three years in office and is now back near the peaks reach in 2002. While some areas do remain protected, even if every last piece of land and coastline had been opened to drilling on his first day in office it would not have increased production much beyond current levels.
The other problem with the Republican complaints is that production in the United States really does not matter much for the price of gas. Oil prices in the United States depend on the world market, not just supply and demand in the United States.
U.S. production is roughly 8 million barrels a day, it accounts for less than 9 percent of a world-wide market that is close to 90 million barrels a day. Even if U.S. production could be increased by a third (an almost impossible increase) it would only increase world supply by 3 percent. This would lower the price of oil by 7-8 percent. This is not trivial, but it is not the difference between $2 a gallon gas and $4 a gallon gas. In other words, there is nothing that the United States can do in terms of its domestic production that would bring gas prices down to the levels that would make many American car owners happy.
The other part of this story is that U.S. proven reserves are in the neighborhood of 20 billion barrels. At our current rate of production we would exhaust them in around 10 years. If we could somehow increase production by a third that would bring the date of exhaustion to just 7 years in the future. This would mean that we would be seeing sharply lower production levels before the end of President Drill Everywhere's second term.
That is the arithmetic of the situation, but the Republicans are betting that they can get away with their story nonetheless. The public is almost completely ignorant of the dynamics of world oil markets. It is widely believed that prices are determined domestically and that if upscale environmentalists did not get in the way, we could drill out enough oil so that gas prices would be cheap again.
Since the media consider it to be their job to report what candidates say and not assess its accuracy, it is likely that the public will go the polls believing that we can again get cheap gas if we just destroyed the environment. The reality is that we have the ability the do the latter.
Editor's Note: This post has been updated since its original publication.
Follow Dean Baker on Twitter: www.twitter.com/DeanBaker13
 |
 |
|
| Obama | Romney | |
|---|---|---|
| Electoral Votes (270 to win) |
332 | 206 |
| Obama | Romney | |
|---|---|---|
| Total | 65,899,660 | 60,932,152 |
| Percent | 51.1% | 47.2% |
| Democrats* | Republicans | |
|---|---|---|
| Current Senate | 53 | 47 |
| Seats gained or lost | +2 | -2 |
| New Total | 55 | 45 |
| Democrats | Republicans | |
|---|---|---|
| Seats won | 201 | 234 |
| Romney | Santorum | Gingrich | ||
|---|---|---|---|---|
| Delegates | 1.47 Thousand | 254 | 138 | |
| Fundraising | $76 M | $16 M | $21 M | |
| Intrade | $9.61 | $0.06 | $0.01 | |
| 570 K | 200 K | 1.5 M |
:-)
Wall Street has long gone from being an allocator of capital to an extractor of capital. They extract a huge speculative tax on the world's economies. Until the banks are cut down to size and brought into balance with the real economy, there will never be a real organic recovery.
But if you can find a barrel of oil anywhere on the planet for 35-40% less than the spot price, GOOD FOR YOU!
:-)
The current price for a barrel of crude is just over $108/barrel. Supply and demand place the price closer to $65/barrel. We all know speculators are a huge part of the high prices. The administration could demand US oil be sold only in the US. The oil companies will scream about having to give up $7-8 billion a quarter in profits though.
Use this temporary measure to control gas prices, while aggressively developing alternative energy to supplement and ultimately replace fossil fuels over the decade our domestic oil is predicted to last.
Why the push for the Keystone pipeline? It will replace an existing pipeline that currently takes Canadian oil to the refineries in middle america, instead sending the oil to the gulf ports to be shipped overseas. What is the advantage for America here, the taxpayer assumes the risk of environmental damage, and more expensive gas in places like Ohio and Kansas. Canada gets to sell it's oil to China and India. The 3-5000 pipeline jobs will be temporary, and ultimately diverting energy from you and your neighbors and sending it overseas RAISING YOUR GAS PRICES! Really?
That is alot of oil flooding the Midwestern markets, too much oil.
My main point is decouple the domestic oil production from the commodities market if all we want is cheap gas.
Also, you assert that doubling the amount of gas "flooding" the Midwest is "too much oil". This excess is only a problem if there is no corresponding increase in consumption in the Midwest over the next 10-20 years. Much as we would like this to be the case, historically there is little evidence to support that assumption.
"Supply and demand place the price closer to $65/barrel."
Where did you get that nonsense from? Oil production has not increased since 2004... oil demand has.
At least you have a little bit of sense of understanding what the pipeline is really supposed to do... except, of course, that it's not about manipulating prices but merely about increasing refinery profits at whatever the price of oil and fuel will be by increasing refinery utilisation.
From CBS News - Goldman Sachs estimate of cost of speculation. ~$
"How much does speculation drive up oil prices? By roughly 20 percent, or between $21.40 and $26.75 a barrel, Goldman suggested. Every million barrels of oil held by speculators results in a price rise of 8-10 percent. Not surprisingly, such increases coincide with record levels of speculation in oil futures, Commodity Futures Trading Commission officials note. Since June 2008, the number of energy contracts held by such investors has risen 64 percent".
http://www.cbsnews.com/8301-505123_162-43552722/when-goldman-sachs-warns-that-speculation-drives-oil-prices-listen-up/
Have a good life! (And don't be too upset when reality passes you by.)
Could it be that there are a select few who want the price of oil and rate of consumption to both remain high?
:-)
US oil production has peaked in 1970.
We tried to drill our way out of this in Alaska. Didn't work.
We tried to drill our way out of this The Gulf. Didn't work.
We are trying to drill our way out of this in North Dakota. Doesn't work.
And, oh, yeah... world oil production has essentially not increased since 2004...
But you know all of that, don't you?
:-)
The US has the largest energy reserves in the world, you know that, don't you?
:-)
There is no high volume process which can convert kerogen shale (oil shale) into a useful hydrocarbon ie: production scale.
The Bakkens contain may contain 20 billion barrels but only ~4 billion may be recoverable.
Don't count your chickens if your eggs are hard boiled .
In what kind of world do you live in?
Name 3
The most promising technology to manufacturer hydrogen are Gen 4 nuke plants ie: high temperature devises.
But with advances with PHEV, why even produce hydrogen? Just generate electric instead of hydrogen.
:-)
Crude being traded in US dollars has nothing to do with any lack of competition in the market for oil and is a free market until you place restrictions on it. You can buy oil in whatever currency you want. You think every country holds billions and billions of dollar bills and actually exchanges them for oil. Just because the price raises in dollars, doesn't necessarily raise the price in yen, provided the yen moves symmetrically to oil prices.
The transportation of oil products is quite complex. Logistically it may make more sense to export gasoline from Texas to Colombia and import gasoline to the Northeast US.
Chavez would love to supply China with Venezuelan crude oil but that is just stupid. Going around South America is a long trip when Texas is so close. And Texas has the refineries to handle heavy crude oil.
Water faucets that can be lit like a blow torch, water so poisonous that they have to import their water, not to mention earthquakes.