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

EIA retail/wholesale cost per gallon of gasoline compared to Brent Crude – Jan/2012 to Nov/2013

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

Monthly Brent Crude oil price in real May 2012 U.S. dollars from 1987 to 2010 (Source: Wiki)

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

European and U.S. crude oil prices from January 1998 to December 2012 (Source: Wiki)

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.

Conclusions

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??

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Nov 8, 2012, in economics, Energy, energy policy, envronment, Life, news, Opinion, Politics, Thoughts. Bookmark the permalink. 6 Comments.

  1. And what about the effect of a declining dollar?

  2. What about having an energy tax and entirely getting rid of the income taxes?

  3. J.D. Anthony

    Don’t you think the oil industry is just about running out of excuses for the rise of prices of gasoline at the pump? The oil conglomerants have got us all by the balls, and they know they can get away with scalping us all, all they want. They have got us so dependent on oil, that we cannot survive without oil, and that’s a damn shame. They purposely shut down most of the refineries throughout the country except for the large few in exsistence, so that when they want a profit increase, they will shut just one or two down, and the rest of the country’s pump prices increase to make up for the local lost revenue, and all we do is follow the leader, as blind assholes, just like sheep following the Judas goat in the slaughter house. It’s time we, the people stand up and demand that we take back America, “for the people”, the way this country was meant to be by the founding fathers of this great nation.
    We all seem to forget that this country was started as a rebellous nation, as the first immigrants were rebelling against the old mother country, England. We were not meant to become slaves to the wealthy and the “must have” ammenities that we are all born to depend on just to survive. Isn’t it time the government stands up for the common people, and when necessary for the survival of all the peoples, take over ANY commodity, whether it be oil or electricity, and make it available for every single citizen without them having to subsitute their meals or health care just for the everyday necessities of electricity and gasoline, just to get around to where they need to get to? People need to stand up together, and fight for one another, so that we all are able to share in the basics of life we have been born into, in today’s day and age. Werer this is going, I think we all know, and we all must take part in, to stand up for America, Americans, and the freedom this country was founded on.

    • I can’t speak to what is happening in England now, but can for the United States.

      This article was written back in November 2012.

      Look at the 1st EIA graph of U.S. gas prices above and you’ll see that gas prices have pretty much followed its forecast for 2013 so far, even including the current increase right now in May. The EIA covers only the United States, not England.

      Ironically, global crude oil prices are matched to the price of Brent crude which comes out of England’s North Sea. That is why the EIA uses Brent crude as a benchmark.

      The good news is that from June until November the EIA says crude and gasoline prices will both decline.

      If true, the EIA graphic supports the premise of this article that supply-and-demand is the main driver of gas prices at the pump, not price gouging or collusion among the oil companies.

      I’m no fan of big oil, but the actual numbers tell the true story and cannot be denied.

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