High gasoline prices are not a cause of the current economic recession, they are an avoidable and unnecessary symptom of liberal environmental and economic policies. When President Barack Obama took office the price of gasoline was $1.83 per gallon. Today it’s over $4.00. Understanding why that is so will give you insight into the patient game plan of the fossil-fuel-hating, combustion-engine-despising, environmentally obsessed left.
The high price of gas is not simply a function of the cost of crude oil. There are many causes for the $4.00 we are currently paying for a gallon of gasoline. Of that $4.00, taxes account for 52 cents, distribution and marketing about 32 cents, refining 56 cents, and the cost of crude oil $2.60. By the mid-20th century, oil was surpassed only by income taxes as the largest generator of revenue for the U.S. government.
Clearly, the biggest portion of the $4.00 you pay goes to the crude oil suppliers. This is where supply and demand takes over. The price of crude oil is determined by the world’s oil-exporting nations, particularly the Organization of Petroleum Exporting Countries (OPEC). OPEC is responsible for over 40% of the world’s crude production. In 2001, when OPEC reduced its production by 1 million barrels a day, gas prices in the U.S. skyrocketed to $1.71 per gallon. When it increased its production in 2005, gas prices dropped.
The United States is actually the third-largest producer of crude oil in the world, but we still import nearly 40% of our crude oil demand, mainly from Canada, Mexico, Saudi Arabia, Nigeria, and Venezuela. But here is where life becomes quite simple. The more crude oil we produce domestically, the less taxes we heap on a gallon of gasoline, the fewer hurdles and blends we require of domestic manufacturers, the less we pay for gasoline. U.S. domestic oil production peaked way back in 1970, and by 2005, imports were twice that of domestically produced crude oil.
Increasing domestic exploration, drilling, and production is the simple solution to what we are paying at the pump. Yet our president has repeatedly misled us by alleging that there is no “silver bullet” for lowering gas prices. What the Obama administration and his liberal machine have been doing is just the opposite — and it is beginning to look intentional.
President Obama follows the liberal playbook about energy independence — code for wind and solar energy which won’t fuel our automobiles, jets, ships, or the war machines he has sent into Libya. He misleads the American people about ethanol leading to energy independence. It can’t and won’t. Ethanol is not economically competitive. Corn ethanol costs an average of $2.53 to produce – several times the 56 cents it costs to produce a gallon of gasoline. Instead, ethanol simply raises the price of gasoline we pay at the pump.
Last month, Shell Oil Company announced it was forced to scrap efforts to drill for oil in the Arctic Ocean off the northern coast of Alaska. The decision comes following a ruling by the EPA’s Environmental Appeals Board to withhold critical air permits. If there was ever a clarion call to strip the EPA of its oil drilling oversight, this is it. Shell spent five years and nearly $4 billion on plans to explore for oil in the Beaufort and Chukchi Seas. The leases alone cost $2.2 billion. The closest village to where Shell proposed to drill is Kaktovik, nearly 70 miles away with a population of 245.
President Obama’s solution to the crisis is to launch investigations and task forces, rather than increasing production. Last month Obama announced that the Justice Department will try to “root out” fraud and waste in the oil markets, yet it was Obama himself who was quoted just a few weeks ago saying, “Politicians are often eager to feed the impression that solving the problem is just a matter of eliminating waste and abuse — you’ll hear that phrase a lot.” At a gas price town hall meeting Obama told a father of ten to cram his family into a hybrid and told us all that inflating our tires and getting a “tune-up” would beat high gas prices.
President Obama overreacted to the British Petroleum Deep Horizon oil spill in the Gulf of Mexico last year by issuing a crippling moratorium on offshore deepwater drilling. The spill was a result of a lack of sufficient oversight during the transition of the rig from exploration to commercial production, a particularly low-probability event. The moratorium did nothing to address the root cause of the accident. The 5th Circuit Court of Appeals agreed with this line of reasoning, yet White House officials falsely represented to the public last year and more recently to a court that scientists had approved the blanket drilling moratorium. The administration then defied a federal court by replacing its original moratorium, which had been struck down, with a substantively identical second moratorium — for no good reason.
Obama’s six-month moratorium cost more than $2.7 billion in economic activity worldwide and $2.1 billion in the Gulf communities. It cost thousands of jobs and significantly reduced our domestic oil production — contributing to the high cost of gasoline. Obama has shut down much of the domestic oil production in the Gulf of Mexico, Alaska, East Coast, and West Coast. The U.S. used to produce daily 10 million barrels; now we are at 7 million barrels, and we will soon be at 6 million barrels.
When the heat of high gas prices hits the White House, they default to their usual mantra of blaming Big Oil. They point to oil company profits and insinuate that these profits are from the sale of gas. However, oil companies have an anemic profit margin on the sale of gasoline — around 6%. This means that while the oil companies see a profit of around 24 cents from the gallon of gas you pay $4.00 for, the government sees a profit of 50 cents in taxes and other charges. It is the government who is gouging and needs to be investigated — not the oil companies.
Something you’ll never hear from our president is that most oil companies simply sell crude oil they produce to other companies who have refining capabilities who in turn sell to independent distributors and retailers. They set the price of gasoline and at every stage of the process people are trying to buy low and sell high. But oil companies make good villains for anybody who dislikes capitalism and the free market economy. Lest we forget, the anemic profit oil companies make on gasoline is the only reason oil companies provide us with gasoline in the first place.
Every three years the price of gas goes up and the left attacks the oil companies. Obama looks at profits as something evil and does not understand that profits are needed to explore for new oil and replace quality reserves. He does not realize — or refuses to acknowledge — that one oil platform alone can cost $1 billion. The left doesn’t understand that higher taxes make the U.S. more dependent on foreign oil, increasing the cost of gas at the pump.
And my how the story changes when high gas prices occur during the Obama administration as opposed to the Bush administration. In 2006, the Democrats cried foul over high gas prices. Nancy Pelosi said, “We are seeing a government run for the oil companies.” When the Democrats took control of the House and Senate, gas prices were at $2.33 per gallon. Senator Barack Obama used high gas prices to get elected, telling people on the campaign trail that he felt their pain.
“I met a guy who couldn’t go on a job search because of the high price of gas,” Obama said in 2008. “I met a teacher in South Dakota who loved her job as a teacher on an Indian reservation, but she had to quit because the drive was too far — it was taking up too much of her paycheck. I know how bad people are hurting.” But he apparently doesn’t feel your pain anymore. In fact, he blames you for high gas prices. Recently, he was asked if he still felt our pain, and he responded, “If you’re complaining about the price of gas and only getting eight miles per gallon – you, uh, know — you may have a big family but it’s probably not that big.”
The media destroyed George Bush over gas prices saying it would destroy the country. But today the media portrays high gas prices as something positive. “Higher gas prices are forcing us to search for alternative fuels and more fuel-efficient cars,” said Priya David on CBS News. “And there are other reasons to be optimistic about the high cost of gas.” So there you go. It’s a good thing.
Obama’s policies are intentionally reducing the supply of gasoline and crude oil just as world demand goes up. One must conclude based on his actions that he doesn’t object to gas at $4.00 a gallon. Inflammatory? It shouldn’t be. In 2008 he said, “I think that I would have preferred a gradual adjustment [in the rising cost of gas]. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps right now to help people make the adjustment, first of all by putting more money in their pockets, but also by encouraging the market to adapt to these new circumstances more rapidly, particularly U.S. automakers.”
A president who truly wants lower gas prices can increase the supply of oil by opening up more areas offshore and in ANWR for domestic drilling and easing regulations. We have plenty of domestic resources to drill, and plenty of companies willing to drill for it if the left and their misguided environmental, big-government and anti-capitalist policies would just get out of the way. Increased domestic production would stimulate U.S. job growth and provide a tremendous boost to our economy. It would lower gas prices, reduce our dependence on foreign oil, and shield us from the effects of instability in the Middle East and price fixing by OPEC.
But these things aren’t going to happen if the president wants just the opposite. The result of our president’s policies has been decreasing oil production, increasing gas prices, and a mass exodus of oil companies sending operations and rigs overseas to “greener” pastures.