When it comes to gasoline prices, we'd all like a second opinion
When It Comes to Gasoline Prices, We’d All Like a Second Opinion
Updated May 12, 2012
Patient: “My arm hurts every time I move it like this.”
Doctor: “Then don’t move it like that.”
This sage advice in the form of humor from that great thinker and philosopher Groucho Marx is a perfect metaphor for how the current Administration and its media minions are addressing the fuel price situation menacing the entire U.S. population and the true fledgling come-back of U.S. industry.
Instead of diagnosing the causes and prescribing meaningful solutions to out of control prices at the pump, Obama and the Democrats would rather distract us with the symptoms. Excuses, speculation, finger pointing and lies dominate the airwaves drawing our attention away from the causes, all of which lead straight to the Oval Office.
He repeated this rhetoric to the press Tuesday in an increasingly rare press conference. The causes he pointed to were bottlenecks in refineries, worldwide production issues and speculators. With regard to speculators, he said that he’s instructed his Attorney General to investigate their activities in a further attempt to deflect blame.
Obama’s solutions – Increase production, support conservation efforts and expand alternative fuel initiatives. Increasing production is just rhetoric , as I’ll show, conservation efforts are happening naturally without his involvement and his ideas are costly, alternative fuels are costly as well and mostly do not involve petroleum products.
The rising cost of gasoline isn’t something that happened just this past month or the past year for that matter. It’s a trend that’s been happening for Obama’s entire time in office. Is this trend intentional or just convenient?
Candidate Obama said in 2007: "I think it is important for us to send some price signals, to change behavior" and that “it's not going to be painless....a lot of us who can afford are going to have to pay more per unit of electricity” to cover the higher cost of green energy production. And Obama's energy secretary Steven Chu has backed him up in several of his own statements.
The sky-high prices conveniently make it more cost effective for his administration to promote its expensive green initiatives and fuel conserving executive mandates. Unfortunately these policies are essentially a regressive tax on the people at the pump who can least afford it.
So while he may not be lying about wanting higher oil prices, Obama is certainly not doing anything about it either. His only answer to the problem is that “all options are on the table” (the same answer he gives for actions in Syria and Iran). Unfortunately none of them help us in the short run.
The rising cost of gasoline isn’t something that happened just this past month or the past year for that matter. It’s a trend that’s been happening for Obama’s entire time in office.
Obama’s new “Not My Fault” campaign tour has been floating a lot of stories. Let’s begin by looking at the various claims and then get down to the causes.
As the economy improves, oil prices will go up
Obama assumes that as the economy heats up demand for gasoline will increase because more people and businesses will be spending. This assertion that there is some correlation between recessions and gas prices appears logical on the surface. It’s probably based on what happened under Jimmy Carter’s reign but the circumstances and responses are very different today. Primarily there are no shortages in supply this time around.
If we look at the more recent recessions the price trends don’t support Obama’s assertion either. During the 1990 recession gas pump prices started at $1.19, rose to $1.34 and ended at $1.05. During the 2001 recession they were $1.41, $1.70 and $1.12. During the 2008 recession the price began at $3.00, fell as low as $1.61 and ended around $2.60, the exact opposite of the previous two recessions.
If we were to graph these metrics we would find nothing in the progression to back up the assertion that gas prices show any correlation either going into, during or coming out of the recent recessions. In previous recessions the trends were lowering prices coming out, not rising.
Supply and Demand
What's indisputable is that oil and gasoline are not in short supply, and that demand remains weak. That was made perfectly clear in the February 10, 2012 weekly energy market update by the U.S. Energy Information Administration.
"Total products supplied over the last four-week period have averaged 18.3 million barrels per day, down by 4.6 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged nearly 8.1 million barrels per day, down by 6.4 percent from the same period last year," said the EIA, the statistical arm of the Energy Department.
Inventories of stored oil are also unusually high, the EIA said.
"At 339.1 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year," the agency said. "Total motor gasoline inventories increased by 0.4 million barrels last week and are in the upper limit of the average range."
It’s pretty clear that there is no shortage in supplies to explain soaring prices. Increases in world production and decreases in U.S. demand have been more than enough to offset the veracious appetites of China and India. Based on the government’s own figures, there is so much excess inventory to support reduced demand that orders are down.
Is Obama really responsible for the increased domestic production?
Not in the least.
Obama often says, “Under my administration, America is producing more oil today than at any time in the last eight years.” That’s true: It’s also true that under Obama’s administration, Snooki from Jersey Shore got pregnant and Charlie Sheen lost his job. And he can take about as much credit for those developments
Obama has actually been the biggest barrier.
Two weeks after Obama took office he canceled seventy-seven oil and gas leases in Utah and proposed billions in new energy taxes. In February 2009, Energy Secretary Salazar made it known that Obama administration would shelve the Bush administration’s Outer Continental Shelf lease plan for six months. Since then his EPA has come down with costly regulations on the industry and refiners, canceled the XL pipeline from Canada, closed off huge areas of federal land and coastline from drilling, shut down the Gulf oil industry and is “slow-walking” permitting.
Obama’s current campaign stump speech to his adoring masses, who are the ones most injured by this phenomenon, includes a claim that he is responsible for the fact that domestic oil production is at the highest level in the last eight years. Taking credit for other people’s efforts is nothing new for our Campaigner-In-Chief.
“Under my administration, America is producing more oil today than at any time in the last eight years,” Obama said in a speech at the University of Miami a couple weeks ago and repeated many times since.
First, as the following graph shows, 2011 oil production on Federal land and waterways fell by 100 million barrels between 2010 and 2011. Oil production is down 14% and natural gas is down 11% in just this last year under his leadership.
Second, any of the existing leases that are producing were part of the hundreds of leases that Bush pushed through at the end of his second term in response to the 2008 spike in oil prices.
And last, the obvious answer is that the increase is solely due to private industry initiatives on private land to develop resources that are off limits to Obama and his Liberal obstructionists.
Obama has cleared millions of acres for exploration
Pelosi made this claim first in a recent press release and Obama is repeating it on his stump stops. It’s actually true, believe it or not.
This would be impressive if it weren’t for the fact that he is talking about millions of acres of sea water. That and Obama has violated court orders to consider lease requests timely and slow-walked the ones that are now getting approved. These are the same leases he and Pelosi are now taking credit for.
Increasing domestic oil production won’t make much difference anyway
We are increasingly hearing this claim from the Left.
CEPR claims that even if Obama had opened up every last piece of land and coastline to drilling on his first day it would not have increased current production levels.
The idea is that worldwide there are 90 million barrels of oil produced daily and even if the U.S. produced two million more barrels a day (a 20% to 25% increase domestically) it wouldn’t have much effect because the price is determined on the world market and the impact would be minimal.
That’s true in math but not in trading markets. The two million barrels is excess and it’s only the first day. After 45 days there is an entire day’s worth of excess petroleum on the market, or 100%. Suddenly this is significant.
The U.S. would also be importing less oil from overseas which means that other producers would either have to cut production or lower prices. The typical response is to make their production more attractive by lowering prices because they don’t want to lose market share.
Remember, why should we pay $110 for oil from overseas when we can produce and deliver it domestically for $50? The home grown profits will spur more local production, create jobs, pay royalties to the various Federal, State and Local governments, and provide lots of taxes right here. Those royalties and taxes will then pay to hire more teachers and police too.
Today all those jobs and taxes are going overseas thanks to our short-sighted Pennsylvania Avenue resident.
If we produced 100% of our oil needs we would run out of oil in 3 to 7 years
"Even if you opened up every square inch of our land and our coasts to drilling," candidate Obama said. "America still has only 3% of the world's oil reserves." Which meant, he said, that the U.S. couldn't affect global oil prices.” He’s repeating this again today except quoting 2%.
From Investors.com, “the figure Obama uses“ the figure Obama uses — proved oil reserves — vastly undercounts how much oil the U.S. actually contains. In fact, far from being oil-poor, the country is awash in vast quantities — enough to meet all the country's oil needs for hundreds of years.”
The U.S. has 22.3 billion barrels of proved reserves, a little less than 2% of the entire world's proved reserves, according to the Energy Information Administration. But as the EIA explains, proved reserves "are a small subset of recoverable resources," because they only count oil that companies are currently drilling for in existing fields.
When you look at the whole picture, it turns out that there are vast supplies of oil in the U.S., according to various government reports. Among them:
At least 86 billion barrels of oil in the Outer Continental Shelf yet to be discovered, according to the government's Bureau of Ocean Energy Management.
About 24 billion barrels in shale deposits in the lower 48 states, according to EIA.
Up to 2 billion barrels of oil in shale deposits in Alaska's North Slope, says the U.S. Geological Survey.
Up to 12 billion barrels in ANWR, according to the USGS.
As much as 19 billion barrels in the Utah tar sands, according to the Bureau of Land Management.
Then, there's the massive Green River Formation in Wyoming, which according to the USGS contains a stunning 1.4 trillion barrels of oil shale — a type of oil released from sedimentary rock after it's heated. This was confirmed by the Government Accounting Office (GAO).
“The Green River Formation--an assemblage of over 1,000 feet of sedimentary rocks that lie beneath parts of Colorado, Utah, and Wyoming--contains the world's largest deposits of oil shale,”Anu K. Mittal, the GAO’s director of natural resources and environment said in written testimony submitted to the House Science Subcommittee on Energy and Environment.
“USGS estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions,” Mittal testified.
“The Rand Corporation, a nonprofit research organization, estimates that 30 to 60 percent of the oil shale in the Green River Formation can be recovered,” Mittal told the subcommittee. “At the midpoint of this estimate, almost half of the 3 trillion barrels of oil would be recoverable. This is an amount about equal to the entire world's proven oil reserves.”
This seems to contradict her boss, Obama, who insists that we’re running out of oil. Ms. Mittal and the GAO go on to further to prove the president to be misinformed at best or a liar at worst when it comes to jobs and the economy:
“As you can imagine having the technology to develop this vast energy resource will lead to a number of important socioeconomic benefits including the creation of jobs, increases in wealth and increases in tax and royalty payments for federal and state governments,” she said.
Now, some of this oil will be very expensive to retrieve, although arguably cheaper than wind and solar, but the reality is that we could be oil-independent for centuries to come. Maybe if the Federal government was investing in these high priced long term jobs instead of temporary “green” jobs, the economy would be on the right tract.
If you still want to believe Obama's story about the limited supply of oil reserves, consider
three decades ago, proven world oil reserves were 645 billion barrels; five years ago, they were 1.28 trillion, and in 2009, they were 1.34 trillion. Innovative technologies will allow producers to discover and recover more oil, if we have access to it.
As the Institute for Energy Research points out, our proven reserves, which Obama has cited so often, of 20 billion barrels were the same in 1944 as they were in 2010, yet we produced 167 billion barrels during that time as technologies improved.
Raising taxes on oil companies will lower gas prices
More taxation seems to be Obama and the Democrats only answer to lowering gas prices. It’s a solution that could only come from a guy whose only private industry experience was working at a Dairy Queen for two weeks.
On the campaign trail, then Senator Obama promised to fine greedy big oil companies. Once in office he fell silent as oil prices steadily raised, revealing his true agenda. Today he wants to take away “subsidies” and close “loopholes” for oil companies in order to punish them.
These subsidies aren’t anything specifically designed for oil companies. They are tax breaks available for manufacturing and development companies as well as all businesses in the country. The “breaks” include depreciation write offs, research and development deductions, and domestic production credits used to promote job growth. Some of these are already reduced for the oil industry but now Obama wants to single out the industry and take them all away.
The industry subsidies, totaling about $2.5 billion, aren’t just for oil but include those for natural gas and coal as well. This accounts for only 15% of all energy-related tax preferences last year. Subsidies and tax breaks are not as significant as Obama would have you believe and the elimination of them would have very little impact on price.
We are still left with the reality that companies don’t pay taxes, they pass the cost on to the consumer. What that means is that if you deny oil producers deductions that everyone else gets and their tax bill goes up, they will just pass the cost on to the consumer. If anybody is confused about who the consumer is that will be paying more for their product, that’s you and me.
The Congressional Research Service (CRS) said the President’s proposal would “decreas[e] exploration, development, and production, while increasing prices and increasing the nation’s foreign oil dependence.”
So Mr. President, raising taxes on oil companies will only increase gas prices and just as likely cost people jobs.
Refineries are closing causing prices to rise
It’s true that refineries have been closing and there haven’t been any new refineries built in decades but there has been no reduction in production.
Prior to the closings there was 25% overcapacity in domestic refining. After the closing there is 15% overcapacity. Only the older unprofitable refineries have been shuttered. The remaining refineries are highly efficient and are continually increasing their productivity.
The increased efficiency of the remaining facilities and a U.S. demand for processed liquid fuels that is at a fifteen year low has led to a net excess in refined gasoline leading to exports. Consequently, other than increases in local markets that used to be supplied with cheaper locally refined gasoline the refineries have no impact on overall fuel prices.
The bottlenecks that the President spoke of in his press conference are not at the refineries but in the pipelines transporting the oil to the refineries. The Keystone XL pipeline blocked by Obama as an appeasement to the Green coalition was intended to relieve some of that bottleneck.
Oil companies are hoarding oil in barges or Blame it on the Koch Brothers
“According to the Kansas City Star, Koch Industries has enriched itself by keeping oil off the market, storing it in offshore tankers and waiting to cash in when the cost of oil rises.” Statement included in a letter from Obama’s campaign manager Jim Messina
This is a rather ridiculous assertion. On the surface, I find it hard to believe that the oil companies have much capacity to hoard a significant amount of oil. In reality they don’t make any money holding oil in barges.
Even if the oil companies or traders did make some margin by holding the oil, they would only lose money on their next buy-sale as prices go back down. Since traders work on futures markets, they have very little leverage when it comes to holding back supply.
As for the Koch brothers, they are refiners. Refiners typically don’t own the oil until it’s delivered to their refineries so they can’t be hoarding oil on barges.
Greedy Wall Street Speculators
In the first sentence of Pelosi’s press release, and repeated relentlessly by the Liberal mainstream media, she says, “Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.” Of course she doesn’t mention who these “independent sources” are.
She goes on to make the equally unsubstantiated claim that Republicans are protecting Wall Street speculators and oil companies. This is rich considering that Obama and the Democrats are the largest recipients of Wall Street campaign cash not the Republicans.
Obama went even further by saying that he has the Attorney General investigating the speculators giving the appearance that there is illegal activity behind the rising prices.
The reality is that speculators definitely do have an effect on the price of oil and thus gasoline. Speculators historically accounted for 30% of trades and end users made up 70%. Today that trend is reversed with 64% of trades by speculators.
It is wrong to assume that the obvious effect of speculator activity is a negative. According to Bruce Bartlett (staff director of the Joint Economic Committee of Congress and deputy assistant secretary for economic policy at the Treasury Department under Bush). Without speculators, commodity prices would swing even more wildly. This makes complete sense according to how markets work, as Bartlett explains:
This stands to reason. Speculators make their money by anticipating price changes. If they anticipate future shortages, they will buy now and bid up prices. If they anticipate a future surplus, they will sell now and put downward pressure on prices. Thus the whole purpose of commodity speculation is to moderate volatility -- raising prices when they would otherwise be lower and reducing them when they would naturally be higher.
As the famous economist Milton Friedman once explained, the only way speculators could possibly increase commodity price volatility is if they are systematically wrong -- buying high and selling low, which is the opposite of how they try to behave and make a profit. If they were wrong too often they would lose money and go out of business.
Said Friedman, "Speculation is stabilizing rather than the reverse.... People who argue that speculation is generally destabilizing seldom realize that this is largely equivalent to saying that speculators lose money."
Obama has doubled-down with a new campaign strategy aimed at increasing regulations to curb evil Wall Street speculators.
Heritage’s David Kreutzer explains that the president’s “the speculators did it” argument is flawed on several levels. If speculators are making unconscionable profits on energy, why are they only doing it occasionally and not all the time? Why are there only speculators in oil, not natural gas (whose current price is about half of what it averaged over the last decade)? And given how the petroleum market works — for every speculator who makes money on a trade, somebody else will lose money — the president’s theory “requires an endless string of chumps to take the other side of the speculators’ deals.” Finally, Kreutzer writes:
For speculation to drive up prices, the speculators must either cause oil production to slow down (which they haven’t) or to pull oil off the market. If the flow of petroleum and its products remains unchanged, the price at the pump will not change. If petroleum is pulled off the market, which can happen even though there are limits to what can be stored, it will eventually come back on the market.
The question becomes, ‘When the oil comes back on the market, is the price higher or lower than when it was pulled off the market?’ The price will only be higher if the amount supplied at that time is lower or the demand is higher. In either of those cases, speculators have helped moderate price fluctuations and will be rewarded with profits. If the price is lower, then the speculators did a bad thing and will be punished by losing money.
While Pelosi and Obama would like us to believe this is a cause, I contend that it is merely a symptom of the real causes discussed below.
It’s those darn Iranians
This has to be the number one story bouncing around. It seems to be the one with the most legs because very few people on the Left pay attention to international situations. Iran hasn’t done anything and neither has Israel. The Iranians did cut off some shipments to parts of Europe but Europe but those countries imported less than 2% of their oil from Iran. That oil has just shifted to India and China. Iran has not supplied the U.S. in years so there has never been any shortage in the marketplace here or abroad.
There were no similar upticks in prices prior to or during the Iraq war. If we go back to the original chart comparing the first few years of the Bush Administration to Obama’s you will notice no huge long-lasting price jumps on GW’s graph in spite of 9/11, Afghanistan or the conflict with Saddam Hussein.
We can probably credit some increase to the onset of the Libyan war but that was in response to an actual war and the Arab Spring which was in full swing threatening the entire region as well as Russia and China.
It would be naïve to think that tensions in Iran and the Straits area aren’t having some effect, but as we discussed in the speculators section, these are spikes caused by a response to symptoms. They are not the root cause.
Presidents can’t influence oil prices
“Short of price controls, which were a disaster during the Nixon administration, politicians can’t do much to change the price of gasoline,” said Guy Caruso, an economist who led the Energy Information Administration and was a CIA analyst. Obama and other high-ranking Dem operatives have claimed the same.
CNN dismissively wrote, “there’s little politicians can do to influence the price of gasoline in the short-term”? In reality there’s quite a bit politicians did do and there is every reason to believe that we would see a similar drop in gas prices if the politicians in Washington decide to allow us to get the trillions of gallons of oil we and the rest of the world know are in areas Barack Obama has specifically placed off-limits.
Let’s take a look back at gas prices from four years ago when they topped $4.00.
In June and July of 2008 the prices began coming down, blipped up a little and then continued to drop until January 2009. So what happened? Conventional thinking is that lack of demand due to the recession caused the drop. Earlier I demonstrated that the trend was opposite in all previous recessions so it must be something else.
Well, how about this? President Bush lifted an executive order banning offshore oil drilling on Monday and urged Congress to follow suit. Citing the high prices Americans are paying at the pump, Bush said from the White House Rose Garden that allowing offshore oil drilling is “one of the most important steps we can take” to reduce that burden.
“This means that the only thing standing between the American people and these vast oil reserves is action from the U.S. Congress,” Bush said. Remember, Pelosi and Reid were in control of both Houses of Congress at the time. The next day oil traded down over $6.00 a barrel.
A few months after signed his executive order, President Bush signed legislation to lift the decades-old moratorium on offshore oil drilling. In addition he approved hundreds of leases on Federal land and opened up discussion in earnest on others.
If the threat of action by a President can drop gasoline prices in half, what about when the prices go up?
When Obama took office he canceled existing leases, eliminated other Bush initiatives and put still others on hold. This was followed by a 60% increase at the pump by June 2009.
The big blow came on December 1, 2010 when President Obama slapped a new moratorium on drilling over many, if not most, of the areas the Bush administration had opened just a year earlier. You can see what happened to the price of gasoline after that. Prices more than doubled his pre-election levels.
So as you can see from the graph, the mere threat of expanding domestic production by a president followed by consideration in Congress resulted in the price dropping at the pump to below $2.00. The opposite actions by Obama have resulted in a doubling of gasoline prices within a relatively short period of time.
Releasing Strategic Petroleum Reserves will help
The United States and Britain have apparently been discussing a joint release of strategic petroleum stockpiles. The U.S. Strategic Petroleum Reserve was intended to be used in the event of a "severe energy supply interruption" whose legal definition is as follows:
- a severe energy supply interruption shall be deemed to exist if the President determines that--
- an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;
- a severe increase in the price of petroleum products has resulted from such emergency situation; and
- such price increase is likely to cause a major adverse impact on the national economy.
Historical experience has shown that seemingly temporary supply disruptions can have very long-lasting consequences. Libyan oil production in November was still only about a third of what the country had been producing in January 2011 prior to last year's disruptions. Iraqi production still has not returned to the average value seen in 1989 prior to the First Persian Gulf War. Iranian production has never returned to the average values achieved in 1977 prior to its revolution.
The U.S. SPR currently holds 696 million barrels of crude oil, of which 62% is sour and 38% sweet. If we relied on this stockpile to replace Iran's current 4 million barrels of daily production, the SPR would be drained in less than half a year.
The SPR is likely to be most effective as a short-term device to help bridge a temporary supply shortfall until other sources can become available. Is there a conception of our current situation in which the primary challenges are short term in nature?
Europe has been trying to get by with less oil from Libya and has been drawing down its private stockpiles, and is looking for alternative suppliers to replace imports from Iran. This market tightness is the key factor in the current price of Brent.
If one believed the Libyan problems will soon be resolved, an SPR release might make sense as a temporary assistance measure, though it is hard to find a basis for similar optimism for a near-term resolution of issues with Iran. Another development that could ease the situation in Europe will be completion by the end of the year of additional pipeline infrastructure to help transport crude from the central U.S. to the coast, which will relieve some of the competition with European refiners for buying international crude currently coming from U.S. refiners on the coast. However, some analysts worry that the added deliveries from the new pipelines will end up using some of the same limited distribution capacity required by an SPR release. And if the justification for the SPR release were just to buy time until more U.S. pipeline capacity can be added, surely the more sensible step would have been to speed up the regulatory review process.
I'm led to conclude that a more important rationale for another SPR release was expressed in the following report from Thursday's Wall Street Journal:
A number of influential lawmakers, including Rep. Ed Markey (D., Mass.), have called on the president to tap the strategic reserve to deflate rising prices. "Releasing even a small fraction of that oil could once again have a significant impact on speculation in the marketplace and on prices," Mr. Markey wrote last month in a letter to the president.
If that sounds familiar, it should. Here is what Representative Markey wrote in a letter to the President dated February 24, 2011:
Right now, the Strategic Petroleum Reserve holds 727 million barrels and is filled to capacity. Releasing even a small fraction of that oil could have a significant impact on speculation in the marketplace and on prices.
In fact we ran that exact experiment last year, which is the reason that Representative Markey would need to paste over "727" with "696" and cross out "is filled to capacity" if he wanted to re-issue the same letter this year as he did the previous year. Specifically, the IEA announced on June 23, 2011 that the OECD countries would release 60 million barrels from their joint stockpiles, half of which came from the U.S. Strategic Petroleum Reserve. There was an initial modest drop in the price of oil on the day of the announcement, though within two weeks the price was back up above where it had been before the announcement.
The price of oil did decline later in the summer, though surely this should be attributed to deteriorating news from Europe rather than the SPR release. For example, last summer's drop in WTI was mirrored by a drop in other financial indicators such as the S&P500.
So if these are just symptoms and false claims, then what’s the cause?
The answer is Obama and the Democratic domestic agenda and his lead from behind international policies.
Obama’s energy agenda
Representative Boehner has posted a similar graph to mine above on his Speaker.gov site highlighting some of Obama’s lowpoints:
What the Speaker’s graph shows is a systematic attempt by Obama to raise fuel prices in order to advance his green agenda. There are a lot of reasons for the various and myriad drops and spikes but each time a new “normal” or base price is achieved and the trend continues up. The latest base point seems to be somewhere between $3.25 and $3.50. Ultimately, Obama and his Department of Energy chair Steven Chu would like to see us reach “European price levels” or even $10.00 per gallon.
Energy Secretary Steven Chu's remark to The Wall Street Journal when he was director of Lawrence Berkeley National Laboratory in 2008, that "somehow we have to figure out how to boost the price of gasoline to the levels in Europe."
This week Secretary Chu was questioned by Congressman Nunnelee. “But is the overall goal to get our price” of gasoline down, asked Nunnelee. “No, the overall goal is to decrease our dependency on oil, to build and strengthen our economy,” Chu replied. The Energy Department has since claimed that he did not say this, but given the source and his similar previously uncontested comments, I think we know what he meant.
Obama has been saying over and over again lately that there are no quick fixes. He’s actually talking from experience since he knows that it has taken him a long time to get to this point. All of the regulations, all of the permitting denials, all of the taxes, all of the international missteps take time. But they have been effective from his point of view as the graph shows.
“All of the above”
Obama is campaigning on the energy slogan of "all of the above" . See his website (ignore that "Donate" tab). The funny thing about Obama's "all of the above" is the limited definition of the word "all." Shades of what the meaning of is is.
"All of the above" does not include our shale oil, it does not include the Keystone pipeline, it does not include ANWR, and it does not include granting leases and licenses for offshore drilling. But, as Charles Krauthammer delights in telling us, it does include algae!
The 800 pound gorilla – The devaluation of the dollar
The “eight hundred pound gorilla in the room” that has been ignored is the effect of Obama’s systematic devaluation of the American dollar on oil prices and ultimately gas prices at the pump.
It is common knowledge that the price of oil is traded on the world markets in U.S. dollars. As the value of the dollar goes up or down in relation to world currencies, the cost of oil increases or decreases inversely. So what does that have to do with Obama? Two words – Quantitative Easing.
Under two bouts of Quantitative Easing (QE) the Fed, under direction of the Obama Administration, has bought back trillions of dollars of Treasuries. In order to do this they had to do what is referred to as print money. This has the effect of creating more dollars in the market without any assets to back up the new currency thus making the original dollars worth less.
Between November 2008 and March 2009 the Fed purchased $1.1 trillion in debt under QE1. QE1 continued thru June 2010 with a total of $1.7 trillion in purchases. August 2010 through November 2010 the Fed continued purchasing $30 billion per month. As the failing stimulus continued to do nothing for the recovery Obama approved another $600 billion dollars between November 2010 and June 2011.
Now let’s compare the progression of gas prices during Obama’s regime to the Quantitative Easing:
The comparison is startling. And the effect on the value of the dollar is no less disturbing. During this period the dollar devalued as much as 20% to 22% due to QE. What does that mean for the price of oil? Based on 20% devaluation you would need 25% more money to buy the same amount of oil.
If we add to this the effect on the dollar of near zero percent interest rates, the first ever downgrading of our debt by S&P, out-of-control spending in Washington, over-regulation and market uncertainty, you can begin to see the true cause just as if we were taking an X-ray of that sore arm.
If there is still any question that increases in oil and gas prices are related to Obama’s monetary policies, consider the one other asset that everybody goes to when the value and confidence in the dollar dwindles – Gold:
The similarities in this graph for gold prices during the same period to the printing of cash by the Fed and the price of gasoline cannot be a coincidence.
Lead from behind
Obama’s destruction of the dollar is only part of the cause. The U.S. is not alone in the market. Oil is produced and traded internationally so Obama’s “lead from behind” foreign policy failures have been critical as well.
China is increasing its international military and commercial influence, Iran has recognized that Obama poses absolutely no threat to their aggression in the region, Israel is taking a go-it-alone attitude with Palestine and Iran, the Muslim Brotherhood is expanding its stranglehold of Islamic nations, Obama has abdicated all foreign relations decisions to NATO and the UN, and Russia is laughing all the way to the bank as it expands its oil industry and nuclear presence.
Yes, Iran and Middle East tensions are influencing oil prices and dictating some of the speculation in the marketplace, but these are symptoms. Had Obama not bowed to every leader in the world and went on his apology tour when he came into office it is much less likely that we would see these actions taking place now on the international stage.
The easiest way to end any discussion on this topic is to ask one question – Would these things be happening if George W. Bush, Dick Cheney and Donald Rumsfeld were still in charge? End of discussion.
The world relies on a strong U.S. economy, a strong dollar and definitely a strong POTUS. Obama has made it clear that he doesn’t want to be that guy. He has advocated for a humbler America and he allowed the first ever downgrade of our debt rating under his watch.
Take two aspirins and call me in the morning
High gasoline prices have forced families to choose between buying food and filling up their gas tanks. It costs our record-deficit-spending Federal government itself billions of dollars in increased fuel and food costs as well as lost royalties and taxes.
As we have seen here, the excuses are many but the actual cause, while staring us in the face every day, seems to be elusive to the media, our President and his Democratic Party members.
Our country is sick and getting sicker thanks to Presidential mismanagement of our dollar and his lead from behind foreign policies. Obama’s diagnoses are merely deceptions in an attempt to keep him off the unemployment line next year.
So when Dr. Barak Hussein Obama tells you to take two aspirins for your pain at the pump, tell him, “I’m sorry Dr. Obama, I’d like a second opinion.”
Come November we’ll get just that chance.