Road Rage: The Truth About Gasoline Prices

Americans are outraged over the steady rise in gasoline prices, and as president, Barack Obama has to take responsibility for what happens on his watch. A recent Reuters/Ipsos online poll indicated that 68 percent of Americans disapprove of how Obama is handling rising gas prices.

While the backlash is inevitable, it raises a key question: How much control does the President really have over oil and gasoline prices? How people perceive the answer to that question could well decide the results of the next election.

A sensitive issue

Gasoline prices are an especially sensitive issue right now, for a few reasons:

  1. The economic recovery is fragile. The economy is growing again, but rising oil prices nearly stalled the recovery a year ago. It could happen again.
  2. Gas price increases seem out of whack. With low wage increases and even lower interest rates on savings accounts, seeing gas prices rise by over 8 percent in a month is pretty galling to most people.
  3. It is an election year. High gas prices look like they could be a key point of vulnerability for Obama, so expect his opponents to keep the issue front and center from now until November.

Revealing facts about oil prices

There's no doubt that Obama will be held accountable for gas prices, but how much impact has he really had on them? Fast-rising prices are grabbing headlines, but some additional facts can lend a more detailed perspective:

  1. Oil prices were actually higher four years ago. For those who associate high oil prices with Obama's policies, it may come as a shock to note that while a barrel of oil was $105.11 as of March 15 of this year, it was $110.21 on the same date four years ago.
  2. There is a fair amount of financial speculation in oil prices. Looking at oil futures, prices are much lower if you look at contracts expiring in a couple years or more. This is fairly unusual for a commodity like oil, which normally would be presumed to rise with the rate of inflation (at least) over time. This type of inversion was very much in evidence just before oil prices peaked in mid-2008, and suggests that financial speculation may be playing a role in current prices.
  3. Lately, gas prices have continued to rise even though oil prices have stalled. Oil prices more or less levelled off in the first half of March, while gasoline prices continued to rise. So far this year (as of March 19), oil prices were up 9.4 percent, while retail gas prices were up 16.8 percent. Could oil company profiteering be at work here?

With the Presidential election coming up, high gasoline prices will provide one key test of Obama's leadership. Releasing strategic oil reserves could provide some short-term relief for gas prices, but it would be a very risky move in a world where oil supply is hardly reliable. It will be interesting to see whether the President can resist the temptation to take this risk for the sake of winning a few more votes in November.

The original article can be found at rage: The truth about gasoline prices