Snap Fact #179
President Obama’s Long Term Policies Hold Down The Prices At The Pump!
Blaming President Obama for the high gas prices that we have been experiencing over the last couple of years has become one of the major talking points of the Republican talk machine. Mitt Romney, the likely GOP presidential candidate, stated that Obama has done everything in his power to make it harder for us to get oil and natural gas in this country, driving up the price of those commodities in the case of gasoline. Is there any truth to this claim, or is it just political grandstanding?
In truth, the price of gas is dependent on many factors, most of which are out of the control of the President. If we consider the average price of gas in the U.S. from ’04-‘12, as shown in the figure below, there are maximums at about $4 per gallon in ‘08, ‘11, and ‘12. While the maximum in ‘08 occurred during the administration of George W. Busch, there was total silence on the part of Republicans concerning the complicity of the President in causing such high prices. The precipitous drop that occurred later in ‘08 when oil plummeted from a high of $147 per barrel in July to a low of $32 in December can be attributed to the national and world financial crises that occurred. The decrease in demand associated with those crises led to a staggering 78% drop in the price of oil.
As is obvious, oil supply and demand are most critical factors to determine the price of gas. Since oil is a global commodity, there are many factors that can affect both supply and demand. The weak economic conditions that led to less demand in ‘08 and ‘09 gave way to economic recovery and more demand. In addition, unrest in the Mideast and North Africa has put supplies at risk. The combination of rising demand and reduced supply has helped to push gas prices higher. World consumption is expected to grow as the global economy rebounds, and gas prices will continue to increase unless we control our avarice for oil.
Another factor that could lead to higher gas prices is oil speculation. A recent study by the Federal Reserve Bank of St. Louis stated that while global demand has been the main force behind rising oil prices, oil speculation was the second largest factor, accounting for a significant 15% of the price increase.
From the onset of his first term, President Obama has attempted to move in the direction of reduced dependence on oil. He has been a strong proponent in utilization of renewable energy sources such as solar and wind power. In ‘11, wind power accounted for more than 20% of net electricity generation in South Dakota, more than 15% in Iowa, and almost 15% in North Dakota.
President Obama also has been moving the country to the utilization of more efficient vehicles. New cars sold in ’08 averaged an efficiency of 27 mpg. In early ’09 President Obama raised the average fuel efficiency standard so that cars sold in ’16 will get 36 mpg. Additional standards agreed to with the automakers in ‘11 would raise fuel efficiency to 55 mpg by ‘25. Such fuel efficiencies would have a dramatic effect on oil consumption and gas prices.