Why Rising Gas Prices Could Backfire On The GOP In November
Eight months before the fall elections, Republican strategists are in a dour mood.
-The economy has begun to gain traction.
-Their leading candidate for president, Mitt Romney, is universally viewed as an uninspiring poster child for the one percent, with no core values anyone can point to except his own desire to be elected.
-Every time Romney tries to “identify” with ordinary people he says something entirely inappropriate about his wife’s “two Cadillacs,” how much he likes to fire people who provide him services, or how he is a buddy with the people who own NASCAR teams rather than the people who watch them.
-The polls show that the more people learn about Romney, the less they like him. The Republican primary road show doesn’t appear to be coming to a close any time soon.
-Together, Bob Kerrey’s announcement that he will get into the Senate contest in Nebraska and the news that Olympia Snowe is retiring from the Senate in Maine, massively increase Democratic odds of holding onto the control of the Senate.
-The Congress is viewed positively by fewer voters than at any time in modern history — and two-thirds think the Republicans are completely in charge.
-Worse yet, the polling in most presidential battleground states currently gives President Obama leads over Mitt Romney and Rick Santorum.
The one thing Republican political pros are cheering right now is the rapidly increasing price of gas at the pump and the underlying cost of oil.
The conventional wisdom holds that if gas prices increase, it will inevitably chip away at support for President Obama — and there is a good case to be made. After all, increased gas prices could siphon billions out of the pockets of consumers that they would otherwise spend on the goods and services that could help continue the economic recovery — which is critical to the president’s re-election.
But Republicans shouldn’t be so quick to lick their chops at the prospect of rising gas prices.
Here’s why:
1). What you see, everybody sees.
The sight of Republicans rooting against America and hoping that rising gas prices will derail the economic recovery is not pretty.
The fact is that Republicans have done everything in their power to block President Obama’s job-creating proposals in Congress, and they were dragged kicking and screaming to support the extension of the president’s payroll tax holiday that was critical to continuing economic momentum.
Senate Majority Leader Mitch McConnell actually announced that his caucus’ number one priority this term was the defeat of President Obama. The sight of Republicans salivating at the prospect of $4-plus per gallon gasoline will not sit well with ordinary voters.
2). Democrats have shown that they are more than willing to make the case about who is actually responsible for rising gas prices — and the culprits’ footprints lead right back to the GOP’s front door.
Who is really to blame for higher gas prices?
-The big oil companies that are doing everything they can to keep oil scarce and the price high;
-Speculators that drive up the price in the short run;
-Foreign conflicts, dictators and cartels — that have been important in driving up prices particularly in the last two months;
-The Republicans who prevent the development of the clean, domestic sources of energy that are necessary to allow America to free itself from the stranglehold of foreign oil — all in order to benefit speculators and oil companies.
The fact is that the world will inevitably experience increasing oil prices over the long run because this finite, non-renewable resource is getting scarcer and scarcer at the same time that demand for energy from the emerging economies like China and India is sky rocketing.
Every voter with a modicum of experience in real-world economics gets that central economic fact.
That would make Republican opposition to the development of renewable energy sources bad enough. But over the last few months the factor chiefly responsible for short-term oil price hikes have been the Arab Spring and Israel’s growing tensions with Iran — all of which are well beyond direct American control.
But with only 2% of the world’s oil reserves, any idiot knows we can’t make ourselves materially more energy independent solely by drilling for more domestic oil. In fact, it is obvious that to have any hope of controlling the prices we pay for energy in the future, we must free ourselves from the dependence on oil in general and foreign oil in particular.
We need an emergency “all of the above” energy independence program that accesses all of the domestic sources of oil that can be developed in an environmentally safe way – plus a major investment in renewable, clean energy sources that free us from dependence on oil – and especially foreign oil.
President Obama has proposed a big first step in exactly that direction, and the Republicans have answered: “Hell no — drill baby drill.”
If they are forcefully challenged by Democrats this year — as I believe they will — that Republican position is simply laughable.
Domestic drilling has increased substantially under President Obama’s administration. And our dependence on foreign oil imports has gone down every year of his presidency. The president has put in place new mileage standards for cars that will save massive amounts of potential oil imports — standards that Republicans have opposed for decades.
But that fact remains, that for all his administration can do on its own to increase energy independence, it is impossible to free America from the stranglehold of foreign oil dependency without the kind of massive national commitment to domestic, renewable energy that must be passed by Congress. The Republicans have said “no” because their biggest energy patrons — the oil companies — oppose a crash program to create renewable energy sources for one simple reason. Every day that we fail to act, the value of their oil goes up — it’s that simple.
If you doubt that Mitt Romney and the Republicans are bought and paid for by Big Oil — just ask the infamous Koch brothers — who finance major Republican “super Pacs” — how much they stand to make personally every time the long-term price of a barrel of oil increases by another dollar.
Simply put, the Republicans have put the profits of their patrons in Big Oil well above the economic and national security interests of the United States of America.
The Republicans even continue to do everything in their power to block the elimination of the astonishing taxpayer subsidy of the oil industry, that continues notwithstanding the fact that big oil companies are more profitable today than any other companies in the history of humanity. And the Republicans do it all the while they blather on about how if we once again install them in the White House, they will bring us $2 a gallon gasoline.
Whoever is pushing those kinds of lines must be studying the techniques of the late, famous circus impresario, P.T. Barnum, who famously said, “There’s a sucker born every minute.”
But in fact, polling shows that American voters simply are not so gullible that they buy either of these preposterous positions.
3). Speculators.
A final contributing factor that has recently amplified increases in gas and oil prices is the role of speculators.
In a purely competitive market, oil prices should settle in the long run at the marginal cost of producing the next barrel of oil — currently between $60 and $70 a barrel. Oil closed last week at about $106 per barrel and ran up to twice the marginal cost of production during the Bush era 2008 oil spike.
Currently about 80% of positions on oil commodity markets are held by “pure speculators” — who bet on changes in oil prices — rather than “end users” who actually consume oil and use the markets to hedge against price increases.
Academic studies have demonstrated that there is a big speculative premium in oil prices, above and beyond any “risk premium” that might normally develop from fear of some immediate, short-term shortage. That speculative premium could be materially dampened if steps were taken to limit the market’s domination by pure speculators.
The Dodd-Frank Wall Street reform bill — which was opposed by most Republicans in Congress and all of their presidential candidates — allows the Commodities Futures Trading Commission to limit the percentage of market positions held by pure speculators as opposed to end users.
Already the CTFC has position limits on the percentage of positions that can be held by individual companies or investors to prevent one from cornering the market. Many economists have proposed imposing similar position limits on pure speculators as a class.
Ordinary voters don’t like speculators. But far from supporting limits on speculation, Mitt Romney wants to go back to the “good old days of yesteryear” where wild, unbridled speculation led to the worst economic collapse in 60 years and costs eight million Americans their jobs.
None of this is good politics for Republicans.
Voters don’t want to be held hostage by the big oil companies or foreign oil. They don’t want to have their pockets picked by oil market speculators. They understand that when world oil prices go up, it benefits oil-state dictators: it’s like allowing Iran’s Ahmadinejad to levy a tax on American consumers. And voters sure as hell don’t want to pay a taxpayer subsidy to oil companies like Exxon that made more in profits in one minute last year (about $85,000) than the average American worker earns all year long.
If Republican strategists think they can reverse their fortunes by focusing on the gas price debate, the odds are good they will be wrong.
By: Robert Creamer, The Huffington Post, March 6, 2012
Speculators, Hedge Fund Managers And “Gas Wars”
Nothing drives voter sentiment like the price of gas – now averaging $3.56 a gallon, up 30 cents from the start of the year. It’s already hit $4 in some places. The last time gas topped $4 was 2008.
And nothing energizes Republicans like rising energy prices. Last week House Speaker John Boehner told Republicans to take advantage of voters’ looming anger over prices at the pump. On Thursday House Republicans passed a bill to expand offshore drilling and force the White House to issue a permit for the Keystone XL pipeline. The tumult prompted the Interior Department to announce on Friday expanded oil exploration in the Arctic.
If prices at the pump continue to rise, expect more gas wars.
In fact, oil prices are rising for three reasons — none of which has to do with offshore drilling or the XL pipeline.
The first, on the supply side, is Iran’s decision to cut in oil exports to Britain and France in retaliation for sanctions put in place by the EU and United States. Iran’s threat to do this has been pushing up crude oil prices for weeks.
The second, on the demand side, is rising hopes for a global economic recovery – which would mean increased oil consumption. The American economy is showing faint signs of a recovery. Europe’s debt crisis appears to be easing. Greece’s pending bailout deal is calming financial nerves on both sides of the Atlantic, and the Bank of England and European Central Bank are keeping rates low. At the same time, China has decided to boost its money supply to spur growth there.
Neither of these would have much effect were it not for the third reason — overwhelming bets of hedge funds and other money managers that oil prices will rise on the basis of the first two reasons.
Speculators have pushed crude oil to $105.28 per barrel, up 35 percent since September. Brent crude, Europe’s benchmark, is now $120.37 a barrel – also worrisome because many East Coast refineries use imported oil.
Funny, I don’t hear Republicans rail against speculators. Could that have anything to do with the fact that hedge funds and money managers are bankrolling the GOP as never before?
But that’s okay. The gas wars may come to a screeching halt before too long, anyway. So many bets are being placed on rising oil prices that the slightest hint the speculators are wrong – almost any sign of expanding supply or declining demand – will set off a sharp drop in oil prices similar to the record one-day fall on May 5 of last year.
By: Robert Reich, Robert Reich Blog, February 20, 2012
A Gasoline Conspiracy To Set Fire To The Obama Administration?
I’ve never been much of a conspiracy theorist as it is not my inclination to see evil lurking behind every bush (no pun intended.) More times than not, things are—for the most part—pretty much as they appear to be.
However, there is a strange anomaly occurring on the highways of America and in the boardrooms of some of our largest investment institutions that has caused me to consider whether a plan is afoot that, if successful, could represent the best possible strategy for ending the presidency of Barack Obama.
According to the Automobile Club of America, gasoline prices have risen, on average, 13.1 cents in the past month—despite the fact that gas prices traditionally fall in the month of February as people drive fewer miles during the wintery month.
What’s more, virtually every projection out there suggests that gas prices are about to make a dramatic rise to, potentially, record levels with some suggesting that $5.00 a gallon gas or more —double the prices of just a few months ago—could very well be in our future.
This becomes a particularly odd statistic when one considers that Americans are using less gasoline than they have at any time in the last fifteen years. Currently, we burn up 8 percent less gas than we did during the peak year of 2006 while most experts expect the trend to continue to where we will be using 20 percent less gasoline by 2030.
Says Tom Kloza, chief oil analyst for the Oil Price Information Service,
Strangely, the current run-up in prices comes despite sinking demand in the U.S. Petrol demand is as low as it’s been since April 1997. People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.
How can this be explained?
Certainly, concerns of a potential conflict in Iran, and the impact such an event would have on the world oil market, would drive prices up. Adding fuel to this gasoline fire are the seeds of uprising that are ripening in the eastern region of Saudi Arabia where most of the nation’s oil reserves are located.
And, to be sure, an improving domestic economy typically results in higher oil prices as demand begins to rise. However, experts seem to agree that even this will not return us to our high’s of 2006.
Experts agree that even when the economy rebounds from the recession, gasoline usage will remain below the 2006 figure, which should remain forever untouched barring any massive economic boom periods or drastic fuel price cuts. That reduction can be attributed to a number of factors such as higher fuel efficiency fleet figures for manufacturers, a higher use of hybrids, an increase in bio-fuels like bio-diesel and ethanol, and continued high gas prices, among other factors.
There has to be something else at work here.
According to Kloza, a healthy percentage of the increase is the result of speculative money flowing into gasoline futures contracts since the beginning of the year, mostly coming from hedge fund and big money mangers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” Kloza says. “Each of the last three weeks we’ve seen a record net long position being taken.”
These record positions that are driving up prices could certainly be the result of speculators’ legitimate belief that Middle Eastern instability and an improving economy at home make higher prices a good bet.
And yet, Middle Eastern instability is nothing particularly new. Even if speculators see an Iranian crisis putting more pressure on the oil markets than in days gone by, it is difficult to rationalize how this would result in a 100 percent increase in prices at the pump, particularly in view of the fact that we use less gasoline today than at other times of crisis.
While Wall Street’s ‘priority one’ is to make money, it is clear that, for this year, priority two is the destruction of Barack Obama’s presidency. Accordingly, from a Wall Street point of view, it certainly is a happy coincidence that that priority one, making big money on oil speculation, could directly lead to accomplishing their second highest mission.
I am left to wonder whether this is a happy Wall Street coincidence or a clever strategy that could pay off big-time come November.
Gasoline prices have a ‘real time’ impact on middle-class voters. Can you imagine a better way to make voters good and angry than to insure that they are paying five bucks a gallon for the gasoline that will be powering them to the voting booth in November? And if you subscribe to the theory that the President’s opponents would like to keep economic growth down until the election is over, what better way to accomplish such a goal than to force a precipitous rise in gas prices?
Maybe what we are seeing is nothing more than the natural and completely explainable reaction to events in oil producing countries and the promise of an improving domestic economy.
However, when you consider that we’ve faced these uncertainties more than once in the past fifteen years, and combine that with the understanding that we are currently consuming less oil products than at any time during that period, it is difficult to come up with a rational explanation as to why gas prices would nearly double in so short a period under these circumstances.
Am I simply getting paranoid as the election season is upon us?
Maybe. But there is no disputing that the higher gasoline prices go, the lower the odds that President Obama will be returned to office for a second term.
So, I’m just saying’…..
As a result of what is coming, it might be a good idea for the Obama Administration to start talking about the reasons for rising gas prices and I’d start talking about it now. This is one instance where silence is anything but golden and without a plausible explanation as to why the Administration is not responsible for what might be a dramatic rise in gas prices, it may be Pesident Obama who is left holding the pump nozzle come December.
By: Rick Ungar, Washington Monthly, February 17, 2012
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