No laughing gas


Filed Under Domestic Policy on Feb 16 

Is there a relationship between gasoline prices and Presidential approval ratings? Gasoline prices are on the move, upward, in the wrong direction. There is no more visible and irritating reminder of the state of the economy that more directly influences an individual’s confidence and outlook regarding their own personal finances than driving by the daily scoreboard of the corner fillin’ station and seeing the home team losing, day after day. 2.57, 2.79, 3.11, 3.34, 3.69, 3.92, 4.06…….

The media seem uniquely incapable of analyzing the underlying causal factors behind crude oil pricing. As a refresher, let’s restate the four major factors here:

First, let’s dispense with the unintellectual, simplistic “oil companies are conspiring to raise prices” nonsense. That’s not what’s happening. Oil is a commodity, traded on the world market like any other commodity, such as gold, copper, natural gas, diamonds, etc. Oil is subject to market forces like every other commodity is.

There are four main factors that influence the price of crude oil on the world market:

1. World supply/demand
2. Exploration/extraction activity and technology
3. Refining capacity
4. Geopolitical influences (aka “the terror premium”)

There’s also a 5th factor: currency value, or the “exchange rate.” This is normally a peripheral factor that only shades oil pricing slightly one way or the other. But now it’s front and center.

Here’s why: Democratic deficit spending and the huge Government spending programs (like the “Stimulus,” Healthcare, the bailouts, etc.) have driven up our national debt to record levels, which reduces the value of the dollar vs. other world currencies. Since oil is traded in dollars (“petro dollars”), it now takes more of them to buy a barrel of oil.

Everything that’s currently happening with crude oil pricing (and therefore gasoline pricing) falls into one of the above categories:

– Iran’s mischief with nuclear weapons and their threatening to close down the Strait of Hormuz? That’s “4.”
– No new refineries being approved by the Obama Administration in deference to pressure from his environmental voting bloc? That’s “3.”
– The annual “summer driving season” as Memorial Day approaches? That’d be “1.”
– Approval to explore in ANWR? “2.”

And so on. Every single thing you hear that affects oil/gas pricing falls into one of the above categories. Why the media can’t frame it in such simple, logical, straightforward terms remains a mystery. But now you know, so you can amaze your friends when they ask, “Why?”

If we improve nos. 2 and 3 above—which are, in fact, totally within our control—we’d be largely freed from nos. 1 and 4, which we can’t really affect at all. And if we restrain Federal spending in a meaningful way, no. 5 pretty much goes away.

But we aren’t doing any of that. As a result, oil/gas pricing is shooting up, wildly beyond our ability to influence it to our benefit. Higher oil costs negatively influence our entire economy, since every material thing is shipped, flown, railed, or trucked by means of a petroleum-based fuel-consuming device, be it iPhones from China, oranges from Florida, or milk from Bessie.

Will the dramatically higher gasoline pricing have any negative consequences for President Obama’s re-election prospects? Good question. This is one area that will be tough for him to blame on President Bush. It will be difficult for Obama to say that the doubling of gasoline prices on his watch was a problem he “inherited.”

As previously pointed out, rising pump prices and rising food prices—both the result of higher oil pricing—are stark, immediate reminders to the “person on the street” as to the state of their personal family finances. When the everyday staples are shooting through the roof, people tend to hunker down and not make risky financial moves. Discretionary spending slows. Hiring slows. Vacations get postponed. Repairs get put off. Last year’s fashions make do a little longer.

From a political perspective, this puts Republicans in an uncomfortable position: Are they actually going to root for a worsening economic scenario in order to improve their electoral prospects? Are higher gas prices a Republican’s best pre-election friend? Will they take this opportunity to point out that Obama’s slavish, vote-hoarding devotion to the Environmental Lobby and his love of so-called Green Energy has cost this country untold billions of wasted dollars, which we see every day in needlessly higher pump and grocery prices?

Conversely, will President Obama be able to convince the public that the Republicans actually want higher gas prices, for their cheap, self-serving, short-sighted reasons of political advantage? He may very well attempt to turn the tables on them and present this entire scenario as an “us” (me and the public) vs. “them” (those nasty Machiavellian Republican opportunists and those d*mn Iranians), good vs. evil struggle.

If the continually-rising fuel costs dampen our feeble economic recovery, it will be a fascinating spectator sport to see how each side attempts to frame things for their best political advantage, while assiduously trying to avoid any return blame whatsoever. There will be no gas shortage there, that’s for sure.