Blaming the speculators and other fairy tales

Ike Brannon President, Capital Policy Analytics
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President Obama’s fatuous suggestion that collusion or — even worse — the actions of the despised “speculators” are to blame for the rise in gasoline prices sends the strongest signal yet that he is finished actually governing until after the election. To intimate that some shadowy cabal of evil oil companies or his favorite bogeyman (and cash cow) from his last election, Wall Street financiers, are to blame for high energy prices rather than simple market forces is a move of breathtaking cynicism. It’s costing more to drive these days for the same simple reasons that prices climbed most of the last decade: Demand is up and supply has not kept pace, in no small part because of this administration’s actions.

There is no debate amongst economists as to why gas prices are going up: Oil prices largely determine gasoline prices and a global economy that’s growing smartly (save for the United States, of course) has been putting upward pressure on demand. China and India in particular are adding millions of new drivers to their nations’ roads every year — and these people need gas to drive.

At the same time, unrest in the Middle East has understandably worried both buyers and sellers of oil, putting further pressure on prices. If some market actors believe there is the potential for prices to spike dramatically in the near future (which would result if, for instance, the Suez Canal were to close or if Saudi protesters managed to damage production facilities there), then a prudent operator might try to set aside some oil for the future, increasing prices today. If that’s illegal speculation, then the president’s commission is going to have to prosecute a lot of people in a lot of markets.

The reality is that this administration has done nothing to reduce the upward pressure on gasoline prices. The drilling moratorium in the Gulf of Mexico may have played well shortly after the BP disaster, but a year later obtaining new offshore drilling permits remains problematic, with lower domestic production as a result. Other oil companies are talking about using the same hydraulic fracturing techniques that have greatly expanded natural gas production to increase oil production in depleted oil wells in Texas and elsewhere, but before this can happen they will need to defeat the administration’s apparatchiks in the EPA, who are doing all they can to ban fracking in all its uses.

The administration’s pusillanimous foreign policy in the Middle East has not helped things either. It somehow managed to anger both the Egyptian rebels who brought down the Mubarak government and those who backed the ancien régime residing elsewhere in the Middle East, a nifty trick for a president who claimed his presidency would reconcile our country with the community of nations that had supposedly come to despise us during the Bush administration. As a result, Mr. Obama is in no position to ask Saudi Arabia or OPEC to do us any favors, such as opening their spigots to nudge prices down. And there is no reason to think Vladimir Putin is inclined to do anything to nudge down oil prices either, even though the administration offered the Russian strongman a “reset” button for the bilateral relationship.

It’s understandable why Obama would seek to blame collusion or illegal speculation for rising gas prices: For starters, his base loves attacks on capitalists and they haven’t exactly been feeling the love lately. What’s more, the people who have the most trouble affording higher gas prices desperately want to believe that there is an easy fix, and it lets the administration off the hook, at least temporarily, for its lousy energy policy.

The president could actually do a number of things to reduce upward pressures on gasoline prices. The fact that he has instead chosen to act like a candidate and invent a bogeyman to blame for high prices isn’t surprising. It’s par for the course for a president who is more comfortable campaigning than governing.

Ike Brannon is director of Economic Policy at the American Action Forum.