Pandering at the Pump

If you want to find wisdom about gasoline markets, avoid Washington, D.C.

In the field of petroleum, location is everything. If you want to find oil, you don't drill in Rhode Island. And if you want to find wisdom about gasoline markets, you avoid Washington, D.C.

In good times, the confusion and folly of our elected leaders have only limited impact. But when pump prices rise to painful levels, as they have lately, you can safely assume that whatever politicians say and do will be poorly conceived and ill-motivated.

As of last week, the cost of regular gas nationally averaged $3.65 a gallon—up from $3.23 a year ago and double what it was when Barack Obama became president. In some places it exceeds $4.

The price of milk or ground beef may climb without setting off mass outrage, but gasoline is more visible and harder to do without. And the great advantage is that when fuel gets expensive, each party has ready-made villains to roll out.

For Democrats, it's capitalists, who are held in low esteem for their preoccupation with making money. The other day House Democratic Leader Nancy Pelosi—who has a net worth of at least $35 million -- announced that the price increases were the result of "Wall Street profiteering" and "speculators who care more about their profits than the price at the pump."

But as George Mason University economist Lawrence H. White has pointed out, blaming greed for a particular economic problem is like blaming gravity for a plane crash. Speculators and Wall Street executives were not any less greedy in the days when gas was cheap. If greed explained prices, they would always be high.

Speculation is just another term for trying to prepare for the future. Lately, fears have spread that tensions with Iran will lead to war, which would reduce the world's supply of oil. When supply declines, prices rise.

If the worst happens, speculators who bet on it will make money. If it doesn't, they will lose money. But they don't cause the ups and downs any more than surfers cause waves.

On the Republican side, there is only slightly greater understanding of how the market functions. Newt Gingrich brags that when he was speaker of the House, gas went for $1.13 a gallon, which is a powerful argument—for returning him to the House leadership, provided he can reinstall Bill Clinton in the White House.

Gingrich says that as president, he'll bring prices down as low as $2 a gallon. How? His plan is to "dramatically expand our capacity to produce energy." It's a variant on the 2008 Republican chant: "Drill, baby, drill!"

But if John McCain preached that mantra, Obama has practiced it. Since he arrived, the number of drilling rigs in operation has more than tripled. Domestic production, which fell by 11 percent under George W. Bush, has grown by 10 percent.

Yet prices have risen, because—surprise of surprises—the United States is only part of the global market. All sorts of events around the world, good and bad, affect oil supply and demand.

As we learned a few years ago, there is nothing like a brutal recession to make gasoline a bargain. As the American economy has recovered, our demand has picked up. Worldwide demand for oil has also risen steadily in recent months. Both help to account for the price jump.

The main explanation, though, is the prospect of a military confrontation that would cut off shipments from the world's fourth largest oil producer. Republicans blame Obama for not attacking Iran at the same time they attack him for high gas prices. But nothing would do more to raise prices than an attack on Iran.

Obama himself was in Florida Thursday delivering the message that, as a New York Times story recounted, "neither he nor anyone else can do much about oil prices." So true. But where did anyone get the idea that the president could affect oil prices?

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  • Speculatards do cause up/downs||

    Speculators Manipulation’s Behind Oil’s Rise
    www.jubileeinitiative.org/riggedoil.html

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  • Barack H Obama||

    The solution to high gas prices is not more oil. Drill baby drill is a mindless rant from the party of yesterday.

    The solution is algae.
    Algae
    ALGAE

    I will be releasing a true plan to cut gas prices later this week, by letting a million ponds bloom green with green algae. If you have a pool in your backyard, or a wet spot in your yard you can be part of the algae solution.

    Grow Algae in your pool.
    Grow Algae in your yard.
    Grow Algae in your bird baths
    and garden fountains.

    In partnership with the federal government for fun and profit.

    Together we can use Algae to whip gas prices and unemployment.

  • Colonel_Angus||

    Do the subsidies pay more than I get for my mosquito farm?

  • Mike M.||

    Algae, cylindrical solar panels, and $45,000 cars with batteries that explode. Now if that isn't change we can all believe in, I don't know what is!

  • Occutards||

    Do it, and we'll start bitching about Big Algae a year from now.

    Or, we'll just go ahead and do it preemptively.

  • CatoTheElder||

    Well, ExxonMobil has been researching algae-to-oil technology for several years and formed a jv with Synthetic Genomics Inc to advance the technology, so you're probably not too far off the mark.

  • John Locke||

    Fine, as long as taxpayers don't pick up the tab.

  • A. Freeman||

    How dare you put genetically modified Algae in my gas tank! My vehicle will be violated!

  • Brother Grimm||

    Two words, my boy; pond scum.

  • ECO-POLICE cause shortages.||

    "Don't violate Mother Earth or we will slam you and throw you in the Gaialag."

  • Joe Stalin||

    They stole my schtick.

  • BigT||

    Next time you are out, count the different brands of gasoline stations you pass. There are dozens of companies in each market. Anyone who thinks they can coordinate activities among these competing companies to manipulate prices is a fool.

  • RoboCain||

    There are far fewer brands now than there were 30 years ago.

  • Colonel_Angus||

    In most cases it's all the same fuel coming from the same pipeline terminal. If one company has an excess, they just pipe it to the reserve allotted for the next company- or just transfer it on paper. So in that way distribution is all coordinated. But there's still a number of competing extraction companies that feed the pipeline.

  • 4chan||

    Not really, you sign an agreement with an oil company, and then have to pay whatever the price they want to sell to you. Its not a uniform price, but a price the oil company has set up for your specific location based on geographic area, population and ease of access to freeways, etc.

    Its a reason why you don't see gas price wars anymore. Every gas station is paying roughly the same amount wholesale for their gas. Its a pretty good system if your goal is to produce a profit on every shipment for the oil company. Not so much for the gas station who knows expensive gas means less business for him.

  • Fluffy||

    Speculators are yesterday's news.

    The lefty bitch of the future will be petroleum and refined products exporters.

    Mark my words.

    "How can we let private companies send our natural resources overseas when families in Buffalo are hurting?"

    It's coming. You heard it here first.

  • Bee Tagger||

    You're probably right since it has that dreaded phrase in it's corner: bipartisan agreement. OReilly and Dobbs are already beating that drum: http://econlog.econlib.org/arc.....d_dob.html

  • RoboCain||

    True, but oil is hardly a free market. It's an international boondoggle of taxes and regulations.

  • ||

    Agree that the oil market isn't really free, but OPEC manipulation plays a larger role than taxes and regulations.

  • KPres||

    How many years did I have to listen to Dobbs on CNN clamoring about the trade deficit....

    Now he wants us to export LESS?

  • ||

    http://www.usatoday.com/money/.....52298812/1

    "For the first time, the top export of the United States, the world's biggest gas guzzler, is — wait for it — fuel.

    Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels."

  • Sparky||

    Actually, it was all over Fox News last week.

  • Fluffy||

    Curses!

    Not watching Fox News has allowed them to get the jump on my predictions for future media stupidity.

  • Loki||

    That just means Fox News is ahead of the curve when it comes to media stupidity. No surprise there.

  • CatoTheElder||

    It's surpassing strange that people would complain about the export of petroleum products.

    Both liberals and conservatives are continuously spouting off about the need to support "manufacturing". Here we have a manufacturing industry that is doing so well that it is competitive in export markets, and all they can do is complain.

  • ||

    Come on man, I mean like seriously, this nonsense has got to stop!

    www.Gone-Anon.tk

  • HeroicMulatto||

    You mark my handle as spam, but you still can't control the anon-bots?

    Fuck you.

  • Fist of Etiquette||

    The price of milk or ground beef may climb without setting off mass outrage, but gasoline is more visible and harder to do without.

    The price of a gallon of milk can rise significantly without effecting the cost of fuel. The reverse can't be said.

  • Bee Tagger||

    The price of a gallon of milk can rise significantly without effecting the cost of fuel.

    Ed Begley Jr's patented "Whey Cool Car" begs to differ.

  • Bill O'Really||

    The president can do plenty. He could stop selling all our oil to the heathen Chinee! He could bring the oil execs onto my show so I could shout over them and jam my finger in their stinkin' faces. He could place a pinhead tax on every barrel of oil that goes out of the country worth half the price they trying to sell it to the commies.

  • Tim||

    Have another drink Bill...

  • Maxxx||

    He could place a pinhead tax on every barrel of oil that goes out of the country

    Actually he can't:

    No Tax or Duty shall be laid on Articles exported from any State. - Article 1 Section 9.

  • Washington Pol||

    Quoting the constitution I see. How quaint...

  • Barack||

    We'll just call it a penalty.

  • mgd||

    The SCOTUS would say, "It's all good. Oil is not exported from 'any State', just certain ones. So a tax is okay."

  • ||

    the last time the government tried to control gas prices was under Nixon and when the Arabs found out they couldn't raise the price anymore they just quit shipping it causing gas shortages. I watch
    Bill Orielly but he's an idiot to even suggest that the president do something.

  • Realist||

    Bill is one of the dumbest fucks on TV....and that ain't easy!

  • sarcasmic||

    So... It has come to this.

  • mgd||

    xkcd.com/1022

  • protefeed||

    you can safely assume that whatever politicians say and do will be poorly conceived and ill-motivated.

    No to the last three words. Many if not most politicians proposing disastrous policies have the best of intentions.

    These well-intentioned but ignorant politicians might be more dangerous than the more knowledgeable bastards pandering to ignorant voters, since if you know something is gonna fail and fail hard you are likely to pull your punches, policywise, or at least have a clue when your rosy scenarios don't pan out.

    Clintonesque weathervaning and reversals of course beats Obamaesque doubling down on failure.

  • Maxxx||

  • protefeed||

    Obama himself was in Florida Thursday delivering the message that, as a New York Times story recounted, "neither he nor anyone else can do much about oil prices." So true.

    Bullshit. Obama refusing to let the XL pipeline happen is gonna result in higher prices than if he approved it. Obama allowing the supply of dollars to double or triple is gonna cause the dollar price of oil to rise, along with all other commodities.

    Policy choices have consequences.

    Now, if Obama had said, "Nothing I am likely to do is gonna help lower oil prices because I'm ignorant about economics", that would be a true statement, but if he was that candid and self-aware, he'd be giving himself a crash course in economics and that would be a self-falsifying statement.

  • OBAMA_GAS||

    gonna gonna gonna.

  • shrike||

    Idiot.

    Keystone/XL has zero effect on petro pricing. If anything KXL would lift prices in the USA (but not worldwide).

  • Contrarian P||

    Why exactly would it raise prices?

  • ||

    An excess of anything has never led to an increase in it price

  • Shorter shrike||

    I just can't stop choking on Team Blue cock.

  • ||

    The real reason the prices of oil and all commodities are rising is because of all the money printing.The value of all paper currencies are returning to their true intrinsic value,zero.

  • OBAMA_GAS||

    Killer Capo Barack holds Mideast at gunpoint so his OPEC cronies can make more $$$ to shovel under the table to OBAMA 2012.

  • OBAMA_GAS||

    The Killer Capo Obama has determined that high prices on gas and food are good for the environment and good for his 2012 campaign. He is on track to spend $200 billion on his campaign and that money is not coming from the "little guy".

  • ||

    You use the fact that drilling has increased by 10% and gas prices are stil up as evidence against the need to drill more. I don't understand this reasoning. I would contend that prices would be even higher if the U.S. hadn't increased drilling by 10% and that further drilling will decrease, or at least check the increase, in the price of gasoline by increasing the supply. Am I missing something? Is there some sort of negative feedback on this system that I'm not seeing? If so, what is it?

  • ||

    Indeed. And the idea that Obama has been practicing "Drill, baby, drill" is laughable.

  • shrike||

    Drilling is up 400% in the US since Jan 09.

  • ||

    Of course, the price of oil is way up since January 2009 (it was down in the $30s back then, up over $100 now). The amount of drilling always goes up when the price of oil goes up.

  • ||

    It'd be up more if Obama wasn't in the way.

  • What they didn't know about...||

    Simple, the increase has been due to leasing of horizontal drilling targets in the natural gas and oil shales. These area's are predominantly onshore and in states like Texas and North Dakota.

    Technological advances created a niche that regulators and looters had yet to know about. Now that they are aware of a body to feed off of there are 12 major regulations in the works, not to mention two bills posed to ban the export of LNG.

    It was simple, the industry figured out and developed these new plays, prior to the government discovering them. Now that they are undeniably productive, Obama takes credit, and the looters all look to take a cut.

    But what the didn't know about, didn't hurt us, and production is up.

  • SFC B||

    Didn't Leno make a joke (I know, how unlikely) at the end of Bush's term about how Clinton denied increased drilling because if would take 10 years for the drilling to result in lowering oil prices, and how now, 10 years later, that sure would have been nice to have started that drilling 10 years ago?

  • ||

    A big oil find anywhere that is accessible causes the price to drop a little alomst instantly. Leno's writers do not seem to comprehend that markets look as far ahead as the people who trade in them.

  • Meatloaf||

    You'll never find gold on a sandy beach
    You'll never drill for oil on a city street
    I know you're looking for a ruby in a mountain of rocks
    But there ain't no Coup de Ville hiding at the bottom of a Cracker Jack box

    I can't lie (I can't lie)
    I can't tell you that I'm something that I'm not
    No matter how I try
    I'll never be able to give you something
    Something that I just haven't got!

  • Realist||

    If you want to find wisdom about anything, avoid Washington, D.C.

  • ||

    I'm surprised that no one has even mentions the inflation caused by the fed's quantitative easing yet that is surely a huge component.
    One complaint question about the article
    "Since he arrived, the number of drilling rigs in operation has more than tripled." Is this a true number I could see if there was one rig and now there are three rigs but my understanding was that there was around 5,000 rigs in the gulf alone, are there now 15,000 that would be an incredible increase, could someone enlighten me on an actual count of before and after.

  • ||

    I just re-read the original sentence it did not state if the rigs were in the gulf so it could be any rigs anywhere land or sea but that would make for an even greater increase of rigs making it even less believable.

  • shrike||

    Because crude oil is down 30% since QE began in 2008.

    Coal and natgas are also down a great deal.

    The inflationistas are idiots (see Ron Paul)

  • ||

    Because crude oil is down 30% since QE began in 2008.

    QE began in November 2008. The price of oil in November 2008 (call it $60) had been dropping like a stone since its June high of $140, at the peak of the liquidity bubble popped by Lehman.

  • shrike||

    The Fed began backing Bear Stearns paper early in 2008.

    But this is quibble. The point is that QE is not inflationary. Its a wingnut myth fed by the likes of Glenn Beck.

  • ||

    The point is that QE is not inflationary.

    Is there a single historical example of a nation that monetized its debt, that didn't suffer from high inflation?

    Inflation has been limited, so far, to food and fuel and some other commodities. In the aggregate, its been offset (masked?) by asset value deflation as we deleverage from the credit binge.

    That deleveraging is very spotty, though. Government debt, of course, is still on the rise. Even consumer debt hasn't really dropped off, including school loans. The deleveraging seems to be happening mostly in housin, autos, and maybe credit cards/consumer spending. Could also be some deleveraging at the state/muni level, as well.

    Debt seems to be migrating upward to the federal government. Which is monetizing its debt. Which never results in inflation, nosiree.

  • ||

    The point is that QE is not inflationary.

    It sort of matters what we count as QE. If it was the official QE1 in November 2008, well, oil prices crashed into early 2009, but have been heading up steadily ever since. I've seen worse correlations, especially when you overlay equity and commodity prices with QE announcements. The latter invariably cause the former to spike.

  • fish||

    Hey where did shrike go?

  • Brother Grimm||

    To get more counter points from the Fed's webpage.

  • ||

    Great! Apparently, we can print as much money as we need and there will never be consequences. Thanks for the tip, shrike.

    What are we waiting for? Let's get this party started!

  • ||

    Are you seriously arguing that we can print as much money as we feel like and that won't have an affect on anything?

    Science H. Logic that is fucking stupid.

  • Shorter shrike||

    I can't stop choking on Team Blue cock.

  • CatoTheElder||

    Your numbers are way off. See:

    http://intelligencepress.com/features/bakerhughes/

    See chart at the bottom of the page.

    Nat gas rig count crashed down in 2008 and has been fairly steady since.
    Oil rig count has been trending strongly up since 2008.

    Both due to changes in market prices ... but also due to long term capital investment decisions that were made before Obama ascended the throne.

  • CatoTheElder||

    Here's a link with everything you ever wanted to know about North American rig count history.

    http://files.shareholder.com/d.....022412.pdf

  • ||

    thanks for all the actual use full info

  • ||

    After looking at the graphs provided it looks to me that the number of rigs are being counted based on weather they are actively producing on any given day. there maybe more rigs running but many may not be new rigs but some old rigs turned back on as part of market demand. Which may be nit picking on my part but it's typical of Obama to take credit for the work of others much like his taking credit for pulling out of Iraq is like if Hoover took credit for ending WWII when FDR did 99% of the work.

  • R||

    Hoover? You mean Truman?

  • CatoTheElder||

    Also see:

    http://investor.shareholder.co....._index.cfm
    US Monthly Averages by State 1992-2011 XLS file

    According to these data, in 2008:

    Lousiana - intl water 20 rigs avg
    Lousiana - offshore 53 rigs avg
    Texas - intl water 2 rigs avg
    Texas - offshore 9 rigs avg
    TOTAL offshore - 84 rigs avg 2008

    In 2011, the comparable total is 50 rigs on average.

  • Yet Another Dave||

    If you want to find wisdom about [insert subject here], avoid Washington, D.C.

    Seems to me, this could be the tagline for pretty much every article posted here.

  • Sam Grove||

    But they don't cause the ups and downs any more than surfers cause waves.

    Actually, speculators do affect prices, but they do so in anticipation of future changes, thereby providing signals to producers to adjust their activities. This activity ameliorates price shocks, and gives people more time to adjust their consumption.

  • ||

    The traditional justification for "speculators" is that they bring liquidity to markets. Among its other benefits, this reduces volatility.

  • ||

    What you don't mention is the government regulations regarding the manufacture of fossil fuels. Not a single new refinery has been allowed in over 30 years.

  • Anomalous||

    ^This^

  • mgd||

    That's true, but that would have more of an effect on gasoline prices, not oil prices as a whole. No? Since gasoline prices and oil prices are rising in tandem, that indicates that refinery capacity, at least at present, is adequate.

    Is my thinking off here?

  • ||

    This article phrases the fact that oil production is up in the US just the like Washington elites do. The fact that oil production is up is because of drilling and fracking on state and private land. Meanwhile, federal drilling permits have been decreased almost by half by the Obama administration while regulations to begin drilling on federal land has doubled. Obama has taken credit for something that he has tried to prevent.

  • ||

    The Government should push to convert cars and trucks to run on natural gas. It would be a win,win,win situation. It burns clean, it would create tens of thousands of jobs, it is plentiful, it is cheap, and it is ours.

  • ||

    "But if John McCain preached that mantra, Obama has practiced it. Since he arrived, the number of drilling rigs in operation has more than tripled"

    Talk about misleading the readers. Look at the graph of oil and gas rigs in operation on the link below.

    Before the Democrat created financial freeze and housing collapse in the late summer of 2008 the total oil and gas rigs in production were more than it is today. From August of 2008 until Obama took office in Jan 2009 the number of oil and gas rigs in production had dropped to their lowest level since 2003. So of course there are more rigs in operation today then when Obama took office but still less than than there were three months before he was elected.

    I used to expect more from Reason but for too long way too many articles have contained misleading and/or inaccurate information.

    www.energydigger.com

  • myfriend123||

    Nice article.

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