Oil, Obama and Outrage

The “blame Obama” chorus is singing again. This time to the tune of high gas prices. Last week in response to declining approval ratings fueled by a 20 percent surge in the price of gas, President Obama proposed new measures that would give federal agencies increased oversight over oil markets. The changes are aimed at curbing investors who manipulate the price of oil for financial gain.

Republicans have been quick to criticize President Obama on high oil prices.

In a recent weekly address, House Speaker John Boehner claimed that the President’s energy plan was responsible for driving up gas prices. Boehner and fellow congressional Republicans have seized the opportunity to to condemn the President’s refusal to green-light the controversial Keystone XL pipeline.

Let’s take a step back and look at what has actually caused the recent spike in gas prices. The price of gas is tied to the global price of oil. Like everything else traded in world markets, the primary drivers of price are global supply and demand. If demand for oil outweighs supply, the price increases. But demand has increased only marginally due to growing use in developing countries such as China and India. In the U.S. demand for oil is actually down 2.3 percent from one year ago.

Instead, what has driven up oil prices this time is price speculation. Investors are purchasing oil in anticipation that there will be disruption in the oil supply that would occur should Israel and/or the United State attack Iran over its nuclear weapon. Increasingly severe sanctions on Iran, who produces five percent of the world’s oil, are also responsible for rising oil prices. Essentially, investors are betting on war with Iran.

Joseph P. Kennedy II, a former Massachusetts Congressman, recently published an Op-Ed in the New York Times blaming pure oil speculators–investors who trade on the speculative price of oil but never actually purchase any–for rising prices. Kennedy argues that pure speculators push the price of oil up for their own personal gain and claims that banning these types of investors would allow the price of oil to decline by up to 40 percent.

Thus, the market is more complex than Republican lawmakers are willing to admit. If the President deserves blame for oil prices, than so do Republicans who have encouraged the President to take an increasingly hawkish stance on Iran.

Despite claims from his opponents that President Obama is doing everything in his power to destroy the oil industry, domestic oil production has expanded on the President’s watch, with U.S. production currently at 5.5 million barrels per day, which is up from 5.18 million in 2008.

Still Republicans are correct that building the Keystone XL pipeline would increase the flow of oil to the United States, allowing refineries to expand the supply of gas. But given the amount of time it will take to complete a project of such magnitude, building the pipeline would not have any impact on the short term price of gas.

In the end none of this may matter. According to a Washington Post/Pew Center Poll, fewer people blame the President for high oil prices. When polled in September 2005, 28 percent of respondents blamed the President for rising oil prices compared with just 18 percent in the February poll.

In the past, high gas prices have indeed sank presidential campaigns. I would argue that one explanation is that voting Americans who have lived through the financial crisis of 2007-2008 and seen the economy begin to recover may have developed a better sense of the complexity and seemingly randomness of global markets. In other words, they’re not as ignorant as the blame-Obama chorus would have you believe.

For a wonkier explanation for oil prices, click here.