Paul Gessing
When it comes to prices at the pump, there is no conspiracy, but there are a number of complicated factors at play.
Gas prices. The mere mention brings to mind conspiracy theories and worries over “big oil” among many Americans. After a lengthy run-up earlier in the spring, prices have declined several weeks in a row, causing the media to focus attention elsewhere, but it is worth discussing factors affecting gas prices, even when they are declining.
To that end, I will speak as part of a panel at a luncheon with several national and local experts in Albuquerque on May 30.
Despite recent declines, gas prices remain relatively elevated in historical terms. Below, I’ll discuss various players in terms of gas prices and will explain the impact of each in determining the prices we pay at the pump.
President Obama and congressional Democrats
The Obama Administration has pushed a variety of anti-energy policies since his election. The most prominent and controversial of these was “cap and trade.” Fortunately, “cap and trade” failed, but that does not clear Obama and his allies in Congress who have continued to oppose drilling in the Arctic National Wildlife Refuge and recently killed the Keystone XL pipeline. The Obama Administration has also placed strict limits on offshore drilling.
It is true enough, as liberals may respond, that changing these policies tomorrow would not have an immediate impact on oil prices, but having leadership in this country that is pro-energy development would signal to the markets that America is serious about leading on energy. This would put downward pressure on high prices.
Lastly, the Obama Administration’s monetary policies must be mentioned. According to Congress’ Joint Economic Committee, the weakening of the dollar since 2008 has added 56.5 cents to the price of a gallon of gasoline.
Price fixing and collusion by the ‘evil’ oil and gas companies
Sorry folks (including populist conservatives like Bill O’Reilly), there is just no evidence for this. People have been accusing and Congress has been investigating the oil companies for conspiring to raise the price of oil. Never once have they found any evidence.
If the oil companies were able to fix prices, what happened during the 1990s, when gas prices were at historic lows? Why did prices drop precipitously during the recent recession? Why have prices dropped recently when all of the so-called “experts” were predicting more expensive gas this summer? Why do gas stations prominently display their prices rather than concealing them, as is done in some industries? I’m looking at you, auto industry.
The economy
This one is the classic good news/bad news scenario and explains much of the recent decline in gas prices. Before the economic crisis in 2008, prices at the pump had risen to stratospheric levels. The economy tanked and people all over the globe were out of work, stopped traveling, and generally kept closer to home. This resulted in oil consumption in the United States declining by eight percent.
Economists see slower economic growth in China, Western Europe falling deeper into crisis, and a disappointing recovery in the United States, and see gas prices easing.
China
Because it was so backwards for so long, economic growth in China defies the traditional boom-and-bust cycle. So, even though economists see growth in China slowing, the fact is that millions of Chinese are joining the middle class annually due to liberalized economic policies.
More than 500,000 new private automobiles are added to China’s roads every month. Such growth is destined to put upward pressure on oil supplies for the foreseeable future.
War worries
President Obama wants to ratchet up pressure on Iran slowly and has not ruled out war. Iran accounts for 13 percent of world oil supplies and the region accounts for about 35 percent of global oil output. War could significantly disrupt production and shipment of oil in and from that region.
Recently, these tensions have waned, further contributing to lower prices at the pump.
Domestic supply growth
Prices could come down dramatically in the future due to vast new shale fields coming online from states like North Dakota. The state just became the 2nd-largest oil producing state behind Texas.
America could, if policymakers are willing, dramatically expand its presence in oil and gas markets worldwide, reducing dependence on imported oil and creating thousands and thousands of jobs at the same time.
No conspiracy
Will prices at the pump be lower or higher in six months or a year? If I knew the answer to that, I could quit my job and make a lot of money.
When it comes to prices at the pump, there is no conspiracy, but there are a number of complicated factors at play.
Paul J. Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.