Whom should we blame for high gasoline prices? The president? Oil companies? Price gougers? Protestors in the Arab Spring? People who drive Hummers?
The answer to that question is one of the first serious issues of the 2011 presidential campaign. (Sorry, Trump. Sorry, Birthers.) It's an issue that could -- and perhaps should -- become an oil war at home, politically speaking.
The issue is heating up because gas prices affect us all, whether we're buying fuel, food or consumer goods. Rising gas prices threaten our recovery from the recession and our ability to put Americans back to work.
To anticipate how the price of oil might unfold as a campaign issue, we can look to California in 2006. One of the initiatives on California's ballot that year was Proposition 87 to establish a new tax on petroleum extracted from the state's oil fields. The tax would have raised $400 million annually to fund alternative energy programs, with the goal of cutting the state's oil consumption 25 percent over 10 years.
Proposition 87 contained a clear prohibition against oil companies passing the cost of the tax to consumers by raising fuel prices. The tax would have to come out of profits. In July 2006, polls indicated that 51 percent of California's voters supported the initiative.
Then in August, opponents launched an aggressive campaign of television ads supported in part by more than $30 million from Chevron. The ads claimed Proposition 87 would result in higher gasoline prices -- despite the prohibition in the initiative.
One of the ads featured the president of the California Chamber of Commerce warning that Proposition 87 "would impose a $4 billion tax on oil produced in California, a tax that would lawfully be passed on to the rest of us."
By October 2006, voter support for Proposition 87 had dropped from 51 percent to 41 percent. The measure was defeated in the November election.
Fast forward to Washington in 2011. Republicans are warning again that a "tax increase" (actually subsidy reform) for oil companies will push gasoline prices higher. Some are blaming President Obama for expensive gasoline.
To his credit on the issue of oil subsidies, the president stirred the pot with an April 26 letter to leaders in the House and Senate, urging them to "take immediate action to eliminate unwarranted tax breaks for the oil and gas industry and to use those dollars to invest in clean energy to reduce our dependence on foreign oil". Obama included the same proposal in his last two budget submissions to Congress.
A day later, 29 Democrats in the House wrote to Speaker John Boehner, asking for an up-or-down vote on oil subsidy reform. Boehner said no. His spokesman explained: "The Speaker wants to increase the supply of American energy to lower gas prices and create millions of American jobs. Raising taxes will increase gas prices and make it harder to create jobs."
In that response, Boehner's spokesman managed to squeeze three big untruths into two short sentences. They came straight out of the dog-eared playbook the oil industry and its supporters continue using to frighten voters about jobs, taxes and energy prices.
The president has proposed repealing tax breaks for oil companies, not increasing taxes for consumers. Repealing the subsidies will result in higher gasoline prices only if oil companies want to shake down consumers. Four billion dollars a year is chump change in the oil industry. It would shave very little off its profits.
In the first three months of this year alone, Exxon-Mobil earned nearly $11 billion. Chevron netted more than $6 billion. When Rep. Diane DeGette asked the Energy Information Administration several years ago whether subsidy cuts would cause an increase in gasoline prices, EIA told her that oil revenues were so large that eliminating the industry's taxpayer subsidies need not make a difference in the price at the pump.
The third misstatement in Boehner's response was that subsidy reform would discourage oil companies from drilling. So long as there's money to be made, oil companies will drill. Again, $4 billion a year will not make a dent in their profits.
In regard to the blame game, Politico reports this week that:
Americans are paying more than $4 a gallon for gas, ExxonMobil announced a 69 percent boost in earnings, and President Barack Obama is struggling with the fact that he can't do much about any of it... Political experts of all stripes say (high gas prices are not) good news for Obama.
Politico cites a new Washington Post/ABC poll in which 60 percent of Independents said they "are concerned enough about gas prices to say that they definitely will not back Obama for reelection."
But if President Obama can't do much more about gasoline prices, why should he be blamed for them? The administration has deployed the few countermeasures in its arsenal to reduce our dependence on oil and the price we pay for it. Among other things, it has instituted aggressive new efficiency standards for vehicles. The president doesn't benefit from spikes in the price of oil. On the contrary. We can be certain he will do all he can to keep the recovery on track.
If it's not "the most powerful leader in the world", then what really affects oil prices? As former Labor Secretary Robert Reich explains:
It's a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge.
The Atlantic offers more detail:
Fuel taxes make up 12 percent of the retail price of gasoline. Gas taxes averaged 48.1 cents per gallon as of last January. The federal portion is 18.4 cents per gallon; state taxes averaged 28.6 cents. The federal tax supports the Highway Trust Fund, which is used to build and maintain the interstate highway system, with smaller portions going to mass transit. It's unlikely these revenues can be reduced without further damaging the nation's deteriorating transportation infrastructure. The American Society of Civil Engineers estimates we are spending $110 billion too little each year to maintain the transportation system even at current levels. Meantime, the Congressional Budget Office predicts the Highway Trust Fund will run a $7 billion deficit this year and will continue to have deficits through 2020.
The biggest factor by far is the price of crude oil. It accounts for 68 percent of what we pay at the pump. It also affects our trade and budget deficits. The Congressional Research Service estimates that when petroleum costs $100 a barrel -- a price we've already exceeded -- our oil imports increase the U.S. trade deficit by $100 billion. Every $10 increase in the price of oil costs our military (in other words, taxpayers) $1.2 billion a day.
The balance of gasoline prices -- 20 percent -- goes for refining, distributing and marketing the fuel.
The biggest factor in price volatility is supply and demand. Also in the mix are increases in U.S. oil consumption during the summer, speculation in oil markets, what's happening in the Middle East and other countries from which we import petroleum, and the strength of the dollar. The least of the factors -- so small that it's overwhelmed by the others -- is domestic oil production.
Gasoline pricing is complex, but the politics are simple. Secretary Reich puts it this way:
This gusher (of oil profits) is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we're cutting social programs to reduce the budget deficit. It's especially embarrassing when Americans are paying through their noses at the pump.
If that doesn't dissuade Republicans and oil-state Democrats from going to war on this issue, then we should ask some questions:
o How can the members of Congress who condemn federal budget deficits support subsidies the oil industry doesn't need?
o How do oil subsidies, some of which have been in place for generations, square with conservative mantras that the federal government shouldn't be picking winners or engaging in corporate welfare?
o How can Congress justify oil subsidies when they've been warned repeatedly by experienced senior military experts that, "Dependence on oil undermines America's national security on multiple fronts"?
Without question, there are issues on which the interests of the oil industry and the public coincide. The obligation of our political leaders is to detect where those interests diverge and, when a choice must be made, to choose on the side of the American people.
If gasoline prices become a huge issue in the 2011 elections, we will see who favors the blame game over solutions and who represents the welfare of oil companies over the welfare of the American people. I can see the first bumper sticker now: John Boehner. R-Ohio or R-Oil?
Follow William S. Becker on Twitter: www.twitter.com/sustainabill
since the market is a futures market and our supply will be dropping soon (as demand rises) this was the worst thing we could have done.
Now we are going to Pay and Obama will take the well deserved hit.
It isn't about global supply. There is adequate global supply for low pricing, if the law of supply and demand worked.
Increasing US supply will not work, in part, b/c there is nothing to keep that supply domestic. It comes out of the ground in the US, goes into a global pool, gets marked up, and comes back with a big price tag.
Whereas Venezuela supplies her domestic demand first and does not allow global interests to dictate local pricing. That is how you get gas at 22 cents US a gallon. And that is the main reason Venezuela and her president is hated, b/c they take care of their own b/4 mutltinational corporations.
Because it's on his watch. He clubbed Bush over the head about oil prices all through the campaign. Welcome to party - now its his turn. Like all Democrats, the writer wants to take away a tax break for an industry it doesn't like and give it to one it does - forget the fact that we borrow 40 cents of every dollar being spent today. Let's not close the loophole and use the money to reduce the deficit.
The stupidity of cutting drilling instead of increasing it now is staggering.
In short, cheap oil - and cheap gas - are gone forever. It sucks. Get used to it.
Why isn't there a price cap on gasoline to protect the consumers?
I know that in many other countries the government regulates the oil companies/price and place a cap, that the gasoline stations can not charge over that government set price.
In mexico they do that on most products, you'll see two prices one is the store's price and the other is the govt. cap.
Price caps are inflationary, you can't stop the market its a train. Putting up a yellow yield saw horse will not stop it, you will pay one way or the other.
Here's an idea : buy a smaller car ? I'm just thinking out loud...........how many people do you see filling up a Dodge doublecab dooley thats not work related ? The biggest fatest SUV on the market for a stay at home mom to putter around from the soccer field to grammer school and the grocery store ?..........$100 tank fill ups are common. Why? Ridiculous indulgence.
You're right about the indulgence, hence the electric car in my driveway.
That would, at least, be a start.
Try this part:
"It's a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge."
Bankers? Governments? or just some guys around the world sitting in front of computer day trading crude oil futures?
Can't hedge, short or bid.
-AJB
The value of the US dollar is at its lowest point since WWII...adds to the expense of gasoline. Today's U.S. dollar is worth $.12 as compared to the value of a U.S. dollar in 1955. A dollar linked to no real value such as gold; makes for extreme volatility; trading in currency and energy speculation bring inflation and economic instability.
The 2006 Senate report: "The Role of Market Speculation In Rising Oil and Gas Prices: A Need to Put the Cop Back on The Beat", Staff Report, June 27, 2006.
"Concurrent with the most recent sustained run up in energy prices, large financial institutions hedge funds, pension funds, and pouring billions of dollars into the energy commodities markets to to take advantage of price changes or hedge against them. Reports indicate a few speculators have made tens and hundreds of millions of dollars trading in oil and gas. ..several analysts estimate speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil.
Obama has no interest in using the power of the Presidency to correct the collision course over which he presides; the UNREGULATED Energy derivative trading OTC, ICE (Intercontinental Commodities Exchange) total lack of transparency.