Plan B Forum

Obama's Double Talk on Sky-High Gas Prices



Energy: When gas prices hit $4 a gallon in 2008, candidate Barack Obama said it was due to previous failed energy policies. Now that prices are heading still higher, President Obama calls it progress.

Already, pump prices are higher than they've been in previous years, suggesting they will top $4 soon and possibly reach an unprecedented $5 this summer.

President Obama is starting to notice the political implications. So he sent Robert Gibbs — now a top campaign adviser — out to tell the public not to worry.

"Just on Friday, the Department of the Interior issued permits that will expand our exploration in the Arctic," Gibbs said Sunday. "Our domestic oil production is at an eight-year high, and our use of foreign oil is at a 16-year low. So we're making progress."

"Progress" isn't exactly how Obama described the country's energy picture in 2008, when gas prices were closing in on $4 a gallon. Then, it was a clear sign of "Washington's failure to lead on energy," which was "turning the middle-class squeeze into a devastating vise-grip for millions of Americans."

"For the well-off in this country," Obama said in May 2008, "high gas prices are mostly an annoyance, but to most Americans they're a huge problem, bordering on a crisis."

In August that year, he declared rising energy costs to be "one of the most dangerous and urgent threats this nation has ever faced" and that gas prices "are wiping out paychecks and straining businesses."

While Gibbs is right that domestic production has climbed in the past three years, Obama's policies had nothing whatsoever to do with it.

Oil coming from offshore wells was in the pipeline, so to speak, during the Clinton and Bush years, when those permits were issued. And the oil pouring out of North Dakota is the result of drilling on private lands.

Obama, in fact, has made it clear for years that he has no real interest in boosting domestic production.

When President Bush announced plans in 2008 to lift the moratorium on offshore drilling, Obama dismissed it, saying "it would merely prolong the failed energy policies we have seen from Washington for 30 years."

"Offshore drilling," he said, "would not lower gas prices today, it would not lower gas prices next year and it would not lower gas prices five years from now."

In a big energy speech he gave in August 2008, Obama argued that "if we opened up and drilled on every single square inch of our land and our shores, we would still find only 3% of the world's oil reserves."

And while in office, Obama's done everything he can to limit production — slow-walking offshore permits, killing the Keystone XL pipeline, making it even harder to get oil out of federal lands.

Instead of aggressively expanding oil production, he offered a set of ridiculous alternatives — hugely wasteful "green" energy subsidies, a call for a million electric cars by 2014 and costly fuel economy mandates that won't make a dent in consumption for decades.

With gas prices up 93% since Obama took office, we're seeing just how well this approach works.

The U.S. could double its domestic production and it would have no effect whatsoever on the price of gasoline. And the reasons why oil prices are rising now have nothing to do with production at all, whether foreign or domestic.

TAMPA (CBS Tampa) — Talk about pain at the pump! Some Florida drivers are spending nearly $6 a gallon to fill up their gas tanks.

WASHINGTON — U.S. demand for oil and refined products — including gasoline — is down sharply from last year, so much that the United States has become a net exporter of gasoline, unable to consume all it makes.

Yet oil and gasoline prices are spiraling upward.

The price of oil topped $106 a barrel and a gallon of regular unleaded gasoline averaged $3.57 a gallon Tuesday — thanks again in no small part to rampant financial speculation on top of fears of supply disruptions.

The ostensible reason for climbing crude prices on the New York Mercantile Exchange, where contracts for future delivery of oil are traded, is growing fears of a military confrontation with Iran in the Persian Gulf's Strait of Hormuz, through which 20 percent of the world's oil passes. Other factors include last month's bankruptcy of Petroplus, a big European refiner, and a fire at BP's Cherry Point refinery, which produces 20 percent of Washington state's gasoline. Gas cost an average of $3.74 Tuesday in the Seattle-Bellevue-Everett market Tuesday — up from $3.60 a week ago.

Another popular explanation Tuesday: trader relief that Greece received another bailout payment from Europe, raising hopes of a boost in oil demand there.

That explanation doesn't add up.

As oil and gasoline prices rose and slowed the U.S. economy last year, traders explained away the trend by saying oil and other commodities moved inverse to slumping stock prices. Oil prices and stock prices now seem to be moving in tandem — upward.

The fear premium is the froth above what prices would be absent fears of a supply disruption — somewhere in the $80 to $85 range for a barrel of oil. Even with the inflated cost from Iran fears, prices are at least $10 more than what demand fundamentals would dictate.

Why? Financial speculators.
What would the price of oil be if left to conventional supply-and-demand fundamentals? Canada is the largest supplier of imported oil to the United States, which produces more than half the oil it consumes. Production and delivery costs for a barrel of Canadian oil are about $75 a barrel. The market-fundamentals cost for a barrel is in that ballpark; above that, speculation sets the prices.

"It's as simple as that," said Gheit, who has testified before Congress and called for regulatory limits on speculation in commodities.

Financial speculators historically accounted for about 30 percent of oil trading in commodity markets; producers and end users made up about 70 percent. Today, it's almost the reverse.

A review of data from the Commodity Futures Trading Commission, which regulates oil trading, shows producers and merchants made up 36 percent and speculators 64 percent of all contracts traded in the week ending Feb. 14.

Not surprisingly, big Wall Street traders Tuesday projected oil will exceed $112 a barrel; some, such as Swiss giant Vitol, even suggested $150-a-barrel oil is coming. When they dominate the market, speculators' bids can make their prophecies self-fulfilling.

"These people are not there to be heroes. They are there to make money. It's our fault because we are allowing them to do that," Gheit said. "... I've been in this business 30 years, and I can tell you I think this is smoke and mirrors."

What's indisputable is that oil and gasoline are not in short supply, and that demand is weak. That was clear in the latest weekly energy market update by the Energy Information Administration (EIA) — for the week ending Feb. 10.

"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 also are unusually high, the EIA said.

Hence, no shortage to explain soaring prices.

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