February 23, 2012

As Oil Prices Rise …

Watching the evening news on ABC, I was particularly struck by the story on rising oil prices. Democrats are concerned that high gas prices will not be good for the candidacy of Barack Obama. I was interested in learning that speculators seem to be driving up the price of oil. Alas, there is little the president can do about gas prices, and speculation is one of the many things over which he has virtually no control.

The Republican candidates are already blaming Obama for gas prices because, of course, they can. Gingrich supposedly has a plan to deliver $2.50/gal. gasoline. It amounts to, as the president pointed out, drill, drill, and keep drilling. Even if you think this is a good idea, it must be pointed out that it won’t deliver $2.50 gas any time soon.

In fact, Republicans are criticizing Obama both for high gas prices and for being soft on Iran. This is frustrating for the president, since putting pressure on Iran is going to increase gas prices. Europe is already putting the squeeze on Iran, and the inevitable result will be higher gas prices for everyone.

1 comment:

  1. Oil prices are indeed tough to manage. Major consumers (plant operators, airlines, governmental fleet managers, etc.) purchase long-range contracts, some 3-5 years, which then give rise to markets in insurance and reinsurance. Basically, what we pay at the pump today is controlled in large part by what market-makers think may happen in the supply/demand pattern over the next five years. Thus a decision about the pipeline seems to have no immediate impact on the supply of oil, yet markets dip or spike as guys in front of computers in Chicago and Riyadh attempt to calculate what impact the decision will have vis-a-vis the call for energy from Chinese industrial concerns in 2016. Then you try to factor in the politics of Iran and Nigeria and the Michigan Republican Primary.

    So it's in the end probably not something you can manipulate, and the only way Newt can get to a reliable $2.50 at the pump is price controls, which will distort the market even further.

    Seems to me the best we can do is have a policy of strong support for the discovery, production, and distribution of oil, gas, coal, nuclear, and renewable and then try to maintain a consistency that isn't blown east or west by every passing political wind. But that's tough for folks on all sides in an election year . . . .

    Bruce Robison


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