Politics and the Price of Gasoline
During the campaign, President Obama was criticized because the price of gasoline has more than doubled under his administration. Obama energy policy was blamed.
Oil company critics often claim big oil purposely manipulates the price of a gallon of gas to boost profits. There is probably a little truth to that.
Today, however, the U.S. Energy Information Administration (EIA) published data indicating neither are the major culprit behind the price of gas at the pump. Good old supply and demand is.
The Brent Crude Benchmark
Brent Light Crude cost is the price per barrel of unrefined oil coming from England’s North Sea. The EIA prices above, including Brent Crude, are from January 2012 projected through the end of 2013.
Brent Crude is the benchmark price for the North Atlantic. The price of a barrel of oil for the entire North Atlantic region, including the United States, is tied to that benchmark. It is the baseline price refiners pay for their raw material.
Brent crude goes up, gas prices go up. Brent crude goes down, gas prices go down.
U.S. President’s do not have direct control over that price, but their energy policy can have influence over it. Other environmental effects come into play at the pump, too.
Behind it all, though, is the price of Brent Crude.
Crude Oil Prices
This shows the inflation adjusted price of Brent Crude from 1987 to January of 2012.
Brent prices remained relatively stable until 2002 when it started rising as production dropped. It reached a crescendo with a gigantic jag in late 2008. It crashed through the floor because of the Great Recession.
It bottomed out in January 2009 coincidentally with President Obama’s first inauguration. Prices have doubled from $40/barrel to $80/barrel since then. Hence, the doubling of pump prices.
Brent Crude and Europe
This compares the price of Brent Crude between Europe and the United States. The line in red is the European price in euros. The line in blue is the U.S. price in dollars.
The price of Brent Crude, and thus the ultimate price of gasoline at the pump, in both Europe and the United States rise and fall in lockstep with each other.
You can also see the Great Recession is a global event based on the giant jag in Brent price in late 2008.
The price of Brent Crude drives the price of gasoline at the pump on both sides of the Atlantic Ocean. U.S. Presidents and price gouging are not the major drivers of gasoline prices. Supply and demand is.
In today’s graphic at the top, the EIA forecasts that Brent Crude prices will trend downward in 2013.
The reason for it is a burgeoning revolution in oil and natural gas production driven by hydraulic fracturing. For the first time in decades, production is up for both in the United States. Increased U.S. and global production will drive down Brent and pump prices in 2013.
This is where a U.S. President has influence. Energy policies that support crude oil production will help drive down the price of a gallon of gasoline at the pump. Policies that discourage production will drive up the price.
Through his energy policies, President Obama is actively discouraging crude oil production on federal lands. Federal lands are the only places where oil production has actually dropped over the last 4 years!!
The Obama Administration is imposing EPA regulations that discourage production of cheap oil everywhere else in order to support green energy development.
Obama may even propose a carbon tax in his 2nd administration that further increases energy costs.
That will make the price of gasoline at the pump go up. It will slow the economy and discourage job creation. Do we really want that??