Who's Responsible For The Higher Gas Prices?

[Guest]

My wife told me something that was said during her bridge club today and I thought it bears repeating and discussion here.

A couple of the women at the club claimed that "Obama is the one causing gas prices to get so high."

I responded to my wife that I never cease to be amazed at how otherwise intelligent people can make such stupid comments. More alarmingly, I don't think they'd say such a thing unless they actually believed it. That's scary.

Here's my take on the gas prices. I'll discuss major variables, but all variables that impact on the price of gas.

I'd argue that "we", the citizens, voters and consumers of the U.S. are responsible for the escalation of the price of gasoline. I might even go so far as to say that the POTUS has very little to do with it. We're responsible because we've permitted, maybe even encouraged the profligate spending done by our government in the recent decade or decade and a half. What does that have to do with the price of gas, you ask?

Almost all the gas we consume in this country is produced from imported oil, mostly from the Middle East. The major oil-producing countries, who control 79% of the world's oil reserves, formed a cartel in 1965 called OPEC. One of their stated goals is to "Assuring the best means for safeguarding the organization's interests, individually and collectively with a view to eliminating harmful and unnecessary price fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries." One of the requirements established by OPEC is that all payments for oil be in U.S. dollars, not the currency of the countries buying and consuming oil.

But back to why our deficit spending and ballooning debt effects the price of oil and gasoline. As our spending deficits and national debt have grown, many of the countries who had loaned us the money to continue such spending have begun to reduce their purchases and holdings of U.S. debt. They have expressed concern over our fiscal condition to our government and have begun to withold loans very judiciously. Our central bank has had no choice but to print money to finance our spending. You'll heaqr terms like "increase the money supply" or "monetize the national debt", both of which are more polite terms for printing more money. Statistically speaking, in the last year or so our own Federal Reserve has been the largest single buyer of our debt, rising to the current level of about 40% of all debt issued. They buy the bonds we issue to pay for our own debt with dollars that they themselves print. A measure of how much of our debt our Fed is buying? The "assets" of the Fed--bonds and debt instruments that they own--have risen by almost a trillion dollars in the last year or so. Those "assets" that have grown so dramatically are our own bonds, bonds the Fed printed and then printed the dollars to buy them from themselves. If we were a family we'd say that we balanced our budget by borrowing from VISA to pay off the MasterCard bill.

The effect of simply printing more dollars is twofold. First, it reduces the value of the dollar. It also causes price inflation for all products and services sold in dollar increments. So, as you can see, the value of the dollar payments to OPEC for their oil would actually have declined as the result of the less valuable dollar...except for one thing. OPEC could see what was happening and decided to make "adjustments" so that the price of oil would increase at roughly the rate that the value of the dollars they were being paid for it declined. The way they adjusted for the declining value of the dollar was to pump less oil, thereby causing its price to increase.

From a statistical perspective, the coefficient of correlation of the value of the dollar and the price of oil is .7, a very high indicator that those two values are linked--when one goes down the other goes up, or vice versa.

Certainly increased worldwide demand has had some effect on the price of oil and gas as well. And so has new oil production from places like Russia and the North Sea. But the more important driver of oil prices has been the declining value of the dollar.

So who is responsible for the dollar's decline? Did it all happen since President Obama was inaugurated in 2009? No. Did it all happen as the result of the Bush administration? No. About all that can be said is that the decline of the value of the dollar began during the early years of the Bush administrations and has accelerated in the most recent 3-4 years. But is the POTUS, Bush or Obama "responsible for the increase in gas prices"? Decidedly not.

If any one group could be blamed--although even they are not solely responsible--it would be the last four or five U.S. Congresses. They are the ones who have authorized the spending that has lead to the current situation. If you want to go further in assigning blame, one could say that U.S. voters are responsible for their own gas price dilemma. They're the ones who sent the 535 people to Washington and they're the ones who have either demanded the spending or stood idly by as the level of spending has increased to unsustainable levels. The POTUS didn't do it...we did!

Now, how far do you think this argument would go with people who are convinced that "Obama did it"...even if they couldn't explain how he did it.

[Guest]

Thanks, Kahuna. Your posts always make a lot of sense.

[Guest]

Probably true but isn't it more like us to blame and villify one party or the other; one President or the other. To calmly and intelligently address a problem or issue just doesn't seem to appeal to most who post here or publicly discuss.

[Guest]

Do not forget the 6 month ban on any new drilling in the US. That is one direct cause of some of the increase cost. Obama goes to Brazil and congratulates them on their oil production and then announces what a great customer the US is going to be to purchase their New oil.

Yes, Obama is directly the cause of some of the gas/oil increase. He wants it that way, as just another part of his central government plan. He can't help it. It's in his Marxist blood.

[Guest]

Do not forget the 6 month ban on any new drilling in the US. That is one direct cause of some of the increase cost. Obama goes to Brazil and congratulates them on their oil production and then announces what a great customer the US is going to be to purchase their New oil.

Yes, Obama is directly the cause of some of the gas/oil increase. He wants it that way, as just another part of his central government plan. He can't help it. It's in his Marxist blood.

I rest my case.

[Guest]

I rest my case.

It's always the libs who cry "don't be mean" or "we are all to blame" when they have nothing substantial to deflect the blame from the facts.

[Guest]

It's always the libs who cry "don't be mean" or "we are all to blame" when they have nothing substantial to deflect the blame from the facts.

I rest my case.

[Guest]

We get most of our crude oil from Canada.

The second place is Mexico.

Third is Saudi Arabia.

Two thirds of our oil comes from our neighbors.

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html

[Guest]

So let's see.. Liberals cried that Bush was trying to 'grab the oil' or went to war in Iraq to keep oil cheap and THAT didn't work out.

BP and their contractors turn the Gulf into a toxic soup and give their executives a bonus for their best safety record ever.

"The market" is supposed to fix things according the the more orthodox conservatives AND IT IS DOING THAT if you believe in supply/demand. The oil companies withe their commodotization of oil will continue to produce their product at the HIGHEST POSSIBLE PRICE becuase they are beholden to their SHAREHOLDERS. The difference in the price of a barrel of oil from Alaska hasn't gone up 30% in a year because it costs more. It's because we'll pay it.

We need to fuel the endless lines of SUVs and pickups I see on my 30-mile commute. When unemployment skyrocketed, the price of oil CRASHED.

We think that trains are bad because they require subsidies (like everything else) so my public-transit commuting options are very limited and, for my current job, virtually non-existent.

Who elected Obama? Who elected Boehner? Bachmann? Who gave Glenn Beck high ratings? Who elected Pelosi, Reid and Biden? WE DID.

And if 'we' stopped watching American Idol long enough to actually RESEARCH a bit into the issues of the day, 'we' might find some solutions.

[Guest]

Do not forget the 6 month ban on any new drilling in the US. That is one direct cause of some of the increase cost....Yes, Obama is directly the cause of some of the gas/oil increase. He wants it that way, as just another part of his central government plan. He can't help it. It's in his Marxist blood.I'm surely not defending the POTUS, but the six month ban on drilling has has absolutely nothing to do with the increase in gas prices.

Think about it as the head of a U.S. oil company might. If they can make just as much money by simply buying the oil from the Canadians, the Brits, the Saudis or other Middle Eastern countries, why would they want to go to the trouble of buying all the equipment, hiring all the people and taking all the risks associated with exploring and drilling for oil here in the U.S.?

In the Middle East, where you can basically stick a straw in the ground and get oil, the cost of a barrel of oil is quite cheap - some estimates have it at $5 per barrel. When you have to use more complicated extraction procedures, like for oil shale, tar sands, or drilling in northern Alaska then piping it to Valdez to put it on ships to take it to refineries in Texas or Aruba, oil can cost quite a bit more--more than the current price of over $100 per barrel. In many cases, it is not economically feasible to extract oil in the U.S. compared to the cost of buying it from the Middle East.

So how you twist the situation to place the blame on the POTUS, and even further to associate it with Marxism is kind of amazing to me. I'd appreciate a little analytical support to your allegations. Yes, I'd appreciate it, but I surely don't expect it.

[Guest]

of oil drilled and taken from USA oil fields and sold over seas on the open market?

I guess that is in the category of GE not paying taxes...and the $38 billion in reduced spending charade.

I vote for we the people to blame. Continuing to tolerate no action being taken to wean us away from foreign oil....for almost 50 years now. To we the people the problem is solved as long as gas goes back to $2 a gallon....caring little that we are dependency on foreign oil CONTINUES increase... and we the people get what they deserve...so far.

BUSINESS AS USUAL!!!!!!!!

btk

[Guest]

Easy enough.

http://moratorium.offshoremarine.org/omsa/

Just the plan to ban causes the prices to go up.

http://voices.washingtonpost.com/post-carbon/2010/12/obama_administration_will_ban.html

Sixty percent also believe that gas and oil prices will drop if the government allows offshore drilling, opening up an estimate 14 billion barrels of oil and 55 trillion cubic feet of natural gas

http://washingtonexaminer.com/blogs/beltway-confidential/obama-moratorium-no-offshore-drilling-while-he-s-office

and for a final point for a "little analytical support for my allegations".

This is, after all, a White House that has put at the center of its domestic agenda its goal of a "green economy," which hinges on making fossil fuels too expensive for Americans to purchase. In January 2008, candidate Obama told the San Francisco Chronicle that under his cap-and-trade plan, "electricity rates would necessarily skyrocket." Steven Chu, now Secretary of Energy, told this newspaper in the same year: "Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe." That would be, oh, $10 a gallon.

http://online.wsj.com/article/SB10001424052748703300904576178152820953870.html

Hope this helps your appreciation and expectations.

[Guest]

Since 1973 this "exceptional"country has failed to come up with an energy policy that could prevent all this price gouging nonsense. Every President has tried and failed. There are a myriad of reasons for this failure but as a country we have failed. One final point,yes we can drill,drill,drill,but please remember oil is a finite resourse,it will eventually run out. To me the shame is our inability to promote an energy policy that will work. Not good for this"exceptional" country.

[Guest]

The enemies of the U.S., home and abroad, know we need oil to fuel our prosperity and we have no short term solution to our massive dependence. To weaken the U.S. they are scheming in every avenue they can to cripple us. Most of the damage has been home grown with the cover of environmental groups who've emasculated domestic production and cause us to become more and more dependent on foreign resources.

I keep hearing about alternative fuels, but even in the heavily priced and heavily dependent European countries I have seen little in the way of development of power sources that can replace oil without severely lowering the standard of living of the countries or the population. The only real alternative to generating massive amounts of energy has been in the nuclear field and the same activists are frantically attacking that industry as well.

This is more about the "New World Order" than it is about anything else. Hope we wake up before we're answering to a controlling World Body.

[Guest]

I'm extremely ill today so pardon me if this sounds crazy.

Are you (collectively) saying we should take away a company's right to sell their goods at whatever price they want to whomever they want?

I thought the 'free market' solved everything?

[Guest]

that are USA in origin and based drilling on USA land to put the country that made their prosperity the first priority.

And I would ask you would you rather they continue to exploit free trade at the expense of the quality of life of America first and foremost.

The question of the thread had to do with thoughts about why gasoline prices/price of oil are high and forecast to go higher. Yes I would vote for the USA keeping oil from it's wells here at home. The amount not exported will quickly be replaced in the world market by those countries that do not have our welfare as a priority.

All the USA would have to do is to state that it is embarking upon a path that reduces it's dependency on imported oil. Then specify it will begin by not exporting American oil. Then we will begin drilling more....where ever. Followed by aggressive investing in alternative fuels with an objective to reduce imports by 50% in the next ten years. The announcement in and of itself will cause a drop in oil prices...the age old solution that always keeps America hooked.

As was stated in prior responses in this thread we have failed as a country to get the job done for the last 40 years. The oil companies have a strangle hold on the politicians that will not put their cash to their cause at risk.

If we took the same approach to imported oil reduction as we did when Kennedy stated what we were to do to get into the space race...it would get done.

Not to mention all the new manufacturing of equipment to make this all happen along with new jobs....a very simple solution to all our problems...but politically not palitable to Washington's 535 and it's oil based special interest groups.

And of course the main ingredient....we the people just do not care enough to demand getting it done. But eventually we will. When it becomes a crisis of proportions that will dwarf any adversity this country has ever faced. It is, as the saying goes...not if it happens...it is only as matter of when it will happen. We are well on our way.

btk

[Guest]

Easy enough.

http://moratorium.offshoremarine.org/omsa/

Just the plan to ban causes the prices to go up.

http://voices.washingtonpost.com/post-carbon/2010/12/obama_administration_will_ban.html

Sixty percent also believe that gas and oil prices will drop if the government allows offshore drilling, opening up an estimate 14 billion barrels of oil and 55 trillion cubic feet of natural gas

http://washingtonexaminer.com/blogs/beltway-confidential/obama-moratorium-no-offshore-drilling-while-he-s-office

and for a final point for a "little analytical support for my allegations".

This is, after all, a White House that has put at the center of its domestic agenda its goal of a "green economy," which hinges on making fossil fuels too expensive for Americans to purchase. In January 2008, candidate Obama told the San Francisco Chronicle that under his cap-and-trade plan, "electricity rates would necessarily skyrocket." Steven Chu, now Secretary of Energy, told this newspaper in the same year: "Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe." That would be, oh, $10 a gallon.

http://online.wsj.com/article/SB10001424052748703300904576178152820953870.html

Hope this helps your appreciation and expectations.
I really admire your research on the subject of what is the real cause of the spike in gas prices. I appreciate your research. But I must differ with the your suggestion that these articles in any way explain the relationship of recent bans on offshore drilling to the price of gas...
Your first citation was from the Offshore Marine Service Association, an offshore drilling lobby group. In it they don't really analyze the eeconomics of the oil-gas pricing formula, but rather exhort their readers to "...join us in the fight to save domestic offshore drilling in the Gulf."

Your second citation was a news article from The Washington Post wherein some details of the drilling ban are discussed. Pro and con opinions are also presented in the article, pro-ban by environmental groups and anti-ban by the U.S. Chamber of Commerce and conservative members of Congress. Again, no real attempt at analysis of why gas prices have spiked upwards.

Your third citation is from on online blogger called The Washington Examiner. In it the author says that two thirds of the public thinks that offshore drilling should be resumed and that 60% of them think that gas prices will decline as the result. Not exactly a thorough economic analysis, do you think?

Your last citation, an article from The Wall Street Journal, describes the efforts of the Obama administration to encourage alternate sources of energy and thier efforts to limit offshore drilling. It's an excellent news piece, but again makes no effort whatsoever to relate the government's activities to the recent increase in the price of gas.
So, Heron, while you provided us all with some citations to read, none of them make any attempt to explain (as I did in my original post) the relationship between reduced offshore drilling and the recent spike in gas prices. Just posting several articles that are related to the question at hand really isn't analytical support for your allegation that it's been the ban on offshore drilling that has caused the price of gas to increase.

[Guest]

Bill: (And I apologize for the snarky-sounding last line I wrote earlier)

You said all we have to do is announce we are not exporting oil. Who's the 'we'?

If I read you right, you're talking about voluntary measures. But it seems to me that a company would be immediately susceptible to shareholder lawsuits if they "did the right thing".

So if an oil company "does the right thing", the shareholders revolt. If they're ORDERED to do it by the government, we get the cries of "Marxism!".

There's got to be a way to break this logjam.

[Guest]

VK,

Fine, your opinion, vs my documented discussions, and articles.
However, your gloss over of the Wall Street Journal article leads me to believe you are only interested in your original beginning post, and not to the challenge that you laid out for me.

I guess then that the discussion is moot.

[Guest]

VK,I guess then that the discussion is moot.No, not really. If we got one another to think and consider an opposing view, even if we didn't change our minds, the whole exercise was worhtwhile.

[Guest]

We get most of our crude oil from Canada.

The second place is Mexico.

Third is Saudi Arabia.

Two thirds of our oil comes from our neighbors.

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html

Tony, Thanks for injected facts into a discussion that seems sadly to lack them. It's a shame that their appears to be little interest in the facts pertaining to the matter and a great deal of interest in political hyperbole.

[Guest]

It's funny that there's been no political outcry over the fact that the US dollar now trades below parity when it comes to the Canadian dollar, or 'loonie' (so named for the bird on the back of their $1 coin).

I remember getting $1.40CDN for my $1US in vacations past. In Canadian newspapers such as the Montreal Gazette they talk about the dangers of reaching parity with the US Dollar as it makes Canadian exports more expensive but it does their balance of trade good in selling all the oil from the tar sands in Alberta.