The gasoline price stops here. At that big house on Pennsylvania. It’s white, not sure which is the front or back. Where else would the responsibility lie for a commodity linked to a commodity traded on multiple world stages by every manner of investment house, hedge fund, and speculator?
This is the level of the gasoline debate in America in 2012. Although a tad more shrill in this election season, it’s been much the same for the past several years: “Gasoline prices are soaring, why isn’t the president doing something about this?” So rings the rhetoric.
It’s a favorite theme of Mitt Romney who in his bid to win the GOP presidential nomination is keen to tell you President Barack Obama has dropped the ball on this one. Gasoline prices, unlike the trees of Michigan, are not at the right height. ”With the economy looking like it’s getting a little better on the employment front, gasoline’s getting a lot worse,” Mr. Romney intoned during a stop in Illinois, as reported by the Wall Street Journal.
And Newt Gringrich, while promising to transport Americans to a colony on the moon vows to hurtle petrol prices back to a level not seen for years. He mandates $2.50 a gallon, but heck why not an even buck?
The Republicans slam Obama’s entire energy program, saying it was a huge mistake to reject the Keystone XL pipeline that was designed to bring in more heavy oil from Canada, while also helping transport growing volumes from North Dakota.
And there are others, like many Democrats on Capitol Hill, who blame excessive speculation and have called for a regulatory clampdown to limit the positions the big houses on Wall Street can hold in the oil markets.
Reality is, however, is more complicated. Speculation is part of every commodity market as it provides the grease to every trade, otherwise known as liquidity. With oil hovering around $125 a barrel in London, most analysts say the problem has a lot to do with fundamentals that involve production interruptions from Libya, Syria and Iran. The problem is exacerbated by razor thin inventories and relentless demand from China and India.
Barclays, in a recent report, said the market has been lurching from conflicting news involving production restarts in one place and declines in other areas. And the market realized a little too slowly that Chinese crude needs were a lot stronger than many had expected.
“The problem is that the oil market has a mind of its own, and while the race to outsmart it will always continue, at times it is better to simply give into the market’s will and roll with the tide,” Barclays said.
Ironically it comes at a time the United States is awash in oil, while demand at home is falling. Drilling is surging in the United States and the oil hub of Cushing, Oklahoma is over run with the stuff, due to a lack of pipelines to get the crude to the Gulf Coast refineries.
The White House recently released a 20-page study highlighting that rising domestic oil production and tougher auto fuel efficiency standards have combined to help slow imports of oil to 8.4 million barrels a day by the end of 2011 from 11 million barrels a day in January 2009.
But it unfortunate that as the United States is weaning itself oil to a certain extent and decidedly turning its back on Middle Eastern oil, that it is still not seeing the benefits at the gasoline pump.
Probably by the fall, American consumers will start seeing an easing of prices, according to a number of projections. The summer driving season will be coming to an end and this will reduce demand. It probably won’t be dramatic but prices should move south of $4 a gallon. On the world stage, barring a preemptive strike on Iran’s nuclear facilities, oil prices could also moderate as Saudi Arabia continues to ramp up production.
Should lower prices arrive in time for the November election, Obama and his allies might be embracing responsibility for it a little more closely. Right now he says there is no quick fix and that the GOP’s strategy is little more than a bumper sticker. But should gasoline and oil trend lower, the White House will be looking for a little praise and a few votes to take a stop at 1600 Pennsylvania Ave.