Snap Fact #179

Post date: May 02, 2012 3:17:52 PM

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.

Another fact that has been misrepresented by Republicans is President Obama’s record on domestic oil development. In reality, domestic oil production has increased during his tenure from about 5.0 to 5.5 million barrels per day. This approximate 10% increase in domestic oil production is certainly not consistent with the claim that Obama has thrown up huge roadblocks to domestic oil development.

As a deterrent to oil speculators, President Obama has ordered the creation of an inter-agency task force led by Attorney General Holder to determine whether price gouging or market manipulation is occurring.

Under President Obama’s direction, the country has been following a long term strategic approach to the problem of rising gas prices by promoting the development and use of alternate sources of energy production, the development of more efficient vehicles to reduce oil consumption demand, and the utilization of more efficient means of domestic oil production. The ultimate goal of these policies will be a reduction in our dependence on foreign oil and the concomitant holding down, if not a reduction of gas prices. We asked the question, does any president have a lot of control over gas prices, at the beginning of this SNAP-CAP. Obviously the problem is more complex than the simplistic "blame it on the President" scenario of the GOP. Not only is their argument disingenuous, it is accompanied by impossible promises that the Republicans know how to hold gasoline costs down. Anyone promising a silver bullet is just demagoging and pandering. As pointed out above, the only way that the former administration got oil prices down was by causing the worst recession in our lifetime. We don't need that method repeated.

President Obama has taken a variety of coordinated steps that will result in the first fundamental major policy shift in energy matters in this country. Even with being fought tooth and nail by the opposing forces the President has set in motion a long term plan to create an infrastructure that will reduce and eventually eliminate dependence on foreign oil. This has been the stated goal of every President in our generation yet none has moved to effective implementation. The President has us on the right path and with a supportive 113th Congress he will be able to accelerate the pace of his reforms.

Note: Please use http://gasbuddy.com/gb_retail_price_chart.aspx for an 8 year period to obtain indicated figure.