As gas prices top $4/gallon in an election year, Americans are fed up with empty promises and cheap gimmicks. Who in their right mind buys Newt Gingrich’s claim that he can lower gas prices to $2.50/gallon?
So, who or what is to blame for high gasoline prices?
The Big Oil spin machine and the Republicans who received 88% of Big Oil campaign contributions would have you believe it’s the President’s conservation policies which aim to balance responsible energy development and the protection of our Great Outdoors.
The truth is that energy development and conservation is not a zero sum game. Under the Obama Administration, domestic oil drilling hit a record high, American oil production hit an eight-year high, domestic demand is at its lowest point in 17 years, and America stands as a net exporter of petroleum products.
The simplistic view of “drill here, drill now” has no credibility as a means to bring down the price of a gallon of gas. In fact, the Associated Press just reported that increased oil drilling has never brought down gas prices.
When I studied Economics, one of the first things they taught was the Law of Supply and Demand and how it should affect price in a free market. This year, the price at the pump seemingly defies that law. Demand for oil and gas in America is down and production is up. But that hasn’t prevented prices from surging, and oil industry profits surging right along with them.
To be clear, supply and demand is one factor at play – but on a global level. The economic progress of China and India, as well as the swelling appetite for oil that comes with that growth, adds to an increase in oil prices. Clearly supply and demand are not the whole story though.
As one expert at Oppenheimer & Co recently noted, “Speculation is now part of the DNA of oil prices.”
That sentiment is echoed by some unlikely sources. ExxonMobil CEO Rex Tillerson recently stated that oil speculation and uncertainty over Iran are driving up the current price at the pump. Citing Goldman Sachs, Forbes reported this past February that oil speculation was adding $0.56 to the price at the pump.
Something else that seems fishy is that while global demand is going up and gas prices surging, Big Oil’s refineries in the United States are cutting back.
So while Americans struggle to pay for the cost of these high energy prices, the oil and gas industry made nearly $137 billion in profits last year. Make no mistake. Oil companies don’t want lower gas prices because it means less profit.
So what is there to do?
President Obama is correct when he says there is no “quick fix” to gas prices. Congress needs to end taxpayer handouts to big oil and reinvest those funds in American energy innovation and clean energy solutions. We need to make our cars and trucks more fuel efficient, so American families can cut energy costs and travel farther on less oil. Congress and the Commodity Futures Trading Commission should crack down on Wall Street speculators to stop their gambling from artificially inflating the price at the pump.
We need an all of the above energy strategy that goes beyond oil. Unless we truly end our dependence on oil, foreign or domestic, we will continue to be vulnerable to global events and market manipulation by Big Oil and their friends on Wall Street.
Originally published on the National Journal Energy Expert Blog