Today, I want to talk briefly about what a President can do to affect gas prices.
If you are inclined to blame the President for our current gas prices, then clearly you must blame Bush and his policies for the even greater rise during his tenure. (Of course you'd also give credit to Bush for lowering prices through his policy of Global Financial Meltdown, so I guess he gets a pass on this one.)
It is not a great insight to point out that President's have little impact on domestic gas prices. One need only look at how closely Canadian prices match US prices over time (albeit with a significant additional tax). One could argue that the Canadian market is dependent upon the US market, and while there is truth in that, it is more the case that both countries are dependent upon the global market.
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| Canadian prices in red, US in blue |
Gas prices at the pump are derived from the price of crude oil, which is driven by global economic and political realities including supply, demand, stability, and growth. Certainly US policies on energy and foreign relations can affect the realities and attitudes which govern crude oil prices. We can increase costs by decreasing stability, and lower costs by reducing demand, for example.
But war and conservation are not what Obama's opponents look to as a cause or solution to our high fuel costs. What they promote is, "Drill, baby, drill." That is, increased domestic production is their solution to energy costs. This is quite likely the least significant opportunity the US has for lowering gas prices.
Oil is a global market. Domestic oil is no different than Middle Eastern oil when it comes to the price at our pumps. Oil from all sources is priced on the global market. The only impact our domestic oil has is to increase the global supply.
America is the third-highest oil-producing nation, supplying nearly 9% of the world’s oil. If we were to double our oil production (which we can’t) that would increase the global supply by less than 10%. A 10% increase in supply would mean a nominal reduction in crude prices, and an even smaller decrease in the price of gas.
The only way domestic production would reduce gas prices is if our oil resources were nationalized, exploited, refined and sold internally at cost. Ignoring all the domestic and international problems with this approach, we consume nearly four times as much oil as we produce. Domestic production will not insulate us from world oil prices.
Like it or not, we're dependent upon the global oil market, and we cannot produce enough oil to significantly reduce market prices.
If lower prices are the goal, lower consumption is the solution. We can't solve the supply side of the equation. We can, however, make dramatic changes on the demand side.
You can read in the news that hurricane Sandy may reduce demand and lower gas prices by shutting down the eastern seaboard for a matter of hours or days. While a severe event impacting a region of our country is one way to affect demand, a better way is to spread small changes over our entire nation.
Conservation – scoffed at by people like Dick Cheney – and alternative energy sources would have a dramatic impact on our thirst for petroleum in a relatively short timeframe.
What Dick Cheney doesn't get, companies like WallMart do. WallMart has an aggressive stance on conservation, reducing their stores' energy consumption by up to 30%, lowering their trucking fleet's fuel consumption by 25%, and is even pushing suppliers to use sustainable farming techniques and less packaging.
Private sector efforts such as these will reduce our national consumption. The Federal Government can do much more by increasing efficiency in their buildings and fleets, and by providing incentives (and dis-incentives) to promote conservation and alternative energy.
Presidents cannot determine oil and gas prices. They can set policies (along with Congress) that move us toward efficiency, thereby reducing our demand for energy and lowering our energy costs.
It's important to note that conservation reduces energy costs regardless of the price of that energy. Consuming less means paying less, even if the unit price doesn't fall. And paying less is the bottom line goal.
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