At last night’s debate, President Obama said gas prices were under two dollars per gallon when he took office because the “economy was on the verge of collapse.” And that if Mitt Romney were elected he “could bring down gas prices, because with his policies we might be back in the same mess.”
The inference of President Obama’s comments is clear; gas prices are near four dollars per gallon because of economic growth. Which raises the question, what can we expect gasoline prices to be four years from now with the President’ promised expanded recovery? After all, second quarter gross domestic product growth was 1.3 percent; the average rate since 1948 has been 3.2 percent per year.
Remember, the president who spoke in last night’s debate about expanding oil production in the U.S. is the same president who in 2009 proposed a number of new taxes on domestic oil production and an “economy wide” cap and trade system designed specifically to increase the cost of using fossil fuels so that alternative energy sources would be more competitive. That had an immediate impact on energy prices, even before the economy started to recover in 2010.
U.S. Import Weighted vs OPEC Export Weighted Average Weekly Crude Oil Prices
The chart above illustrates the average weekly U.S. price of oil and the average weekly price of oil in OPEC countries. Both responded to the threat of U.S. taxes and the cap and trade scheme. Moreover, it had a bigger impact on domestic supplies of oil—the very source of energy that the president took credit for expanding during the debate. Even then, however, the average price of U.S. oil was substantially cheaper than the average OPEC price—except when Obama’s energy tax proposals were in play.
Consider, on February 26, 2009, when the president unveiled his FY2010 budget proposal which included new taxes on U.S. oil and gas production and use, prices of U.S. oil started to increase faster than the OPEC price. When the Senate Budget Committee passed its version of the FY2010 budget that did not include cap and trade scheme, the gap between the US and OPEC prices widened again. Conversely, on May 7, when President Obama officially transmitted his spending blueprint to Congress—and it contained cap and trade—U.S. oil prices rose once again in relation to global prices.
At best, that was an inauspicious start to the energy policy record the president took credit for last night. At worst, it is a track in which the president’s energy policy remain mired. He’s still calling for an end to the oil depletion allowance which lets U.S. oil producers recover the cost of capital expenditures for new exploration. That’s an $85 billion tax. He’s still cut back on leasing of federal lands; Mitt Romney was right during the debate. In fact, President Obama’s own Department of Energy issued a special report in March that shows fossil fuel production on federal and Indian lands is the lowest it has been in nine years, and is now six percent less than in 2010. He’s blocked the Keystone XL Pipeline, and implemented a new offshore oil lease plan that cuts the number of lease sales, and blocks drilling off of both the Atlantic and Pacific coasts as well as most of Alaska.
In short, it took only a few months of Obama energy policy to drive up gas prices. Energy remains expensive because we’re still pursuing the same policies—or as the president might say, we’re “back in the same mess.”
Dave Juday is an agricultural commodity market analyst.