President Obama nailed it Thursday in his speech at the University of Miami:
“You can bet that since it’s an election year, [Republicans are] already dusting off their 3-point plan for $2 gas — and I’ll save you the suspense: Step one is to drill and step two is to drill. And then step three is to keep drilling,” he said. “We heard the same line in 2007 when I was running for President. We hear the same thing every year. We’ve heard the same thing for 30 years. Well, the American people aren’t stupid. They know that’s not a plan, especially since we’re already drilling. That’s a bumper sticker. It’s not a strategy to solve our energy challenge. That’s a strategy to get politicians through an election.”Indeed, many besides Republicans are taking note of the recent price rise and what that might mean come November. Somewhere, the speculation goes, there is a point at which the president, and the party which he heads, will take unacceptably large hits from voters convinced that the Democrats are at fault. What that price point might be is variously put at $4 a gallon (a price already to be found throughout California), $5 or somewhere north of there.
Newt Gingrich, one of the Republicans who the president says is "licking their chops" over the prospect of higher gasoline prices by election day, is promising $2-a-gallon gasoline when he enters the Oval Office. His plan is to do what has become one word: drillbabydrill. To step up domestic production more than the 8 percent it has already risen over the past few years. Run the price down by boosting supply that's supposedly hampered by "radical environmentalists" and their Democratic lackeys.
This just goes to show that the guy who thinks he's the smartest fellow in the GOP contest, if not the universe, doesn't understand the global economics of oil or the constraints on how much U.S. production can be had. Even if every square inch of public land from the deep waters of the Gulf of Mexico to the warming tundra of northern Alaskan is pumped dry, the flow from U.S. wells will never again be enough to appreciably budge world prices much.
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The recent rise—the average nationwide price of a gallon of regular was $3.647 Friday morning—is blamed on a range of causes, chief among them being tension with Iran. But there are also theories such as the one proposing that the settlement over Greece's finances have encouraged a belief economic improvement is raising demand for gasoline, pinching supplies. But there is currently no shortage of supply. Indeed, the U.S. Energy Information Administration reports that the nation is at the high end of the average amount of supplies for a February.
So, with domestic production up,
worldwide demand well below pre-recession levels, U.S. demand down as people drive more efficient vehicles or use public transportation more than previously, and supplies of oil brimming, the suspicion in many people's minds is that something else is at work. Kevin G. Hall at McClatchy makes a case for it—speculation:
"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation," said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. "I still remain convinced oil prices are inflated."If Kilduff is right, then oil still should be trading for $13 to $18 a barrel less than it is.
Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency's director for energy markets and security, said that "there are alternative supplies that can make up for any loss of Iranian exports," The Wall Street Journal reported. [...]
"I put the Iran security premium at about $8 to $10 (a barrel) at this point, which still puts crude at about $90 or $95," said John Kilduff, a veteran energy analyst at AgainCapital in New York.
If speculation is a key element in the price of oil, the question becomes what can be done about it. Commodity regulations are deucedly hard to enforce across international boundaries. National price controls, last tried in the Nixon administration, work poorly in an international market. A windfall profits tax on oil companies has been suggested and is an excellent idea. It might even gain traction in a Congress with a very strong Democratic majority. But for the moment it has the same probability of passing as nationalizing the oil giants.
Ultimately, the answer is to get us off oil as a transportation fuel, something we have to do not only because of a long-term dwindling of supply, but also because burning fossil fuels is fouling an atmosphere already overburdened with carbon emissions. However, even the most aggressive initiatives on that score will take many years to achieve. And we do not have even a mildly aggressive effort under way at the moment.
So we'll be stuck for the next few months hearing a lot of right-wing pundit and candidate nonsense tailored to squeeze as many votes as possible from people who actually believe that politicians have a short-term solution in this matter.
Jamess has a diary here on this subject.