Can President Obama Do Anything About Gas Prices?

Old Gas PricesI’ve been frustrated with the state of American politics and government of late. I’m guessing you have been as well. I think both sides of the political spectrum deserve critique. In fact, I find it very sad that I even define it as “two sides”, rather than 5 sides, or 10 sides, or 20 parties.

Right now we’re concerned with government defaults, the price of insurance, as well as what Angela Merkel does in her free time.

For me, I ultimately don’t “feel” affected by the daily politicking of the left and right wing. What I do feel affected by nearly every day is gas prices.  Years ago when George W. Bush was president and gas prices soared to $4 a gallon, I wondered why he didn’t do something about it. Today, I wonder the same thing about President Obama. For all of Congress and Obama’s unpopularity, they all could score major points by lowering gas prices, right? What about all that flack George Bush took for middle eastern wars? I’m sure some people would have complained a little bit less if gas prices stayed around $1.50.

I always thought it was funny when I would hear people say we invaded Iraq for oil. Then why isn’t my gas any cheaper??

So the question is begged: can the President affect gas prices?

Critics of any president — whether the target is George W. Bush, Barack Obama or any of the 42 men who preceded them — are quick to blame him for things that are totally beyond his control. (Of course, the president and his supporters are equally quick to take credit for things that are beyond his control, but that’s another story.) The price of gasoline is a perfect example. When George W. Bush was in office, Democrats blamed him for allowing gas prices to rise from $1.45 a gallon on his inauguration day to $4.05 a gallon by June 2008. And now that Barack Obama is in the hot seat, Republicans are blaming his economic and energy policies for a similar price increase at the pump.

The truth is that no president — whether Democrat or Republican — can do much of anything to affect the short-term price of oil, and therefore gasoline. The overriding factor that determines the price of oil from day to day is the market principle of supply and demand [source: U.S. Energy Information Administration]. It comes down to simple economics: When demand is greater than supply, prices rise.

And demand is growing. Emerging superpowers like China and India are approaching the U.S. in their appetite for oil. To further complicate matters, much of the world’s oil supply is tied up in the politically unstable Middle East. Unrest in Syria and Libya, and embargoes against Iranian oil put a significant squeeze on the global supply [source: Sommer]. The president can help build a more stable and secure Middle East through foreign policy decisions — war or diplomacy? — but these are long-term strategies that don’t affect short-term price fluctuations at the pump.

What does affect these volatile price fluctuations at the pump?

Gas Prices and the Oil Supply

The actual price of a barrel of oil is constantly changing, since oil is a commodity that is traded on the futures market. Buying and selling oil futures is called speculating, because you’re making trades based on expectations of future supply and demand. When Israel threatens to bomb Iran, for example, speculators drive up the price of oil to hedge against a possible shortage in the future. President Obama called on Congress to impose tighter regulations on oil speculators, but even if Congress acted (which it hasn’t), the rest of the world would have to follow suit to really affect global gas prices [source: Yetiv].

What about increasing the oil supply? Can’t the president boost U.S. production? It’s true that aggressive increases in U.S. oil production would bring the global supply closer to the demand for oil. Unfortunately, the U.S. is such a small player on the international oil scene — we control only 2 percent of the world’s oil reserves — that even if we doubled our current production capacity, we still wouldn’t make much of a dent [source: Thaler]. It would also take a number of years to assemble the drilling rigs, pipelines and manpower to make that type of production increase, meaning oil prices would be unaffected in the short-term.

The only way the president can quickly boost the oil supply is by tapping the Strategic Petroleum Reserve, an emergency stockpile of more than 700 million barrels of crude oil stored along the U.S. Gulf Coast. In June 2011, President Obama released 30 million barrels of oil from the emergency reserves in response to crises in Libya and Yemen. President Bush also tapped the reserves in the aftermath of Hurricane Katrina, temporarily lowering gas prices 10 to 15 percent [source: The New York Times]. Experts agree, however, that these emergency reserves should be reserved for emergencies, not employed as temporary relief to market-driven problems.

So there’s no easy answer, except that the president doesn’t have direct control of the world market for oil, and therefore can’t easily influence it’s prices.

Comments

  1. Presidents have little impact over the immediate price but they can implement policies that could impact it greatly over the long term. I don’t even see us doing that now.

  2. The entire American political system is broken and neither party is “better” than the other. There is no political solution to ANY of the issues we face in America. ALL of the solutions are in the hands of state and local governments and individuals. This is the point at which we must arrange our lives so as to be able to become apathetic to the actions of Washington, because they are NOT going to solve the problems they created. Self-reliance, skills development, emergency preparation, when you get into that mindset, you come to a point where there isn’t anything congress or the president can do to ruin your life.

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