Gas prices that give us gas

In the summer of 2008, gas prices in my corner of Wisconsin reached $4.129 per gallon, 6 cents per gallon less than the all-time state record of $4.189 per gallon.

That was in June and July 2008, when gas prices are usually at their highest. shows what gas prices have done from then to now:

On Monday, I put gas in my car at $3.629 per gallon. It is nowhere near tourist season.

Gas prices are already at $4.36 per gallon in California. (That's for regular self-serve; ABC-TV was doing a story from a California gas station last week where prices were already over $5 per gallon, and during the live report gas went up another 10 cents per gallon.) Nationwide, unleaded costs almost $3.67 per gallon. And the summer tourism driving season is three months away.

We know from our 2008 experience what happens when gas prices jump over $4 per gallon and diesel fuel nears $5 per gallon. It's not just that vacation plans get curbed or canceled. We discover how much fuel prices affect the cost of everything that requires transportation from producer to seller, beginning with food. We also discover how many things come from petroleum, including plastics and rubber. And since police cars use gas and fire trucks use diesel, even the cost of providing government services increases. It seems rather obvious that $5-per-gallon gas is the surest path to tanking our fragile-at-best economy.

Someone therefore should tell President Obama that public impotence is not a winning campaign strategy (see Carter, Jimmy, 1980). From the Associated Press:

"We know there's no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight," Obama said Saturday in his weekly radio and Internet address. "But what we can do is get our priorities straight and make a sustained, serious effort to tackle this problem." …

Obama said Republicans have one answer to the oil pinch: Drill.

"You know that's not a plan, especially since we're already drilling," Obama said, echoing his remarks earlier in the week. "It's a bumper sticker."

Obama is pushing what he calls an "all-of-the-above" approach to the problem of limited energy resources, meaning an attempt to seek out alternative energy sources while reducing consumption of traditional fuels.

That's not an all-of-the-above approach. An "all-of-the-above approach" would reduce dependence on foreign oil by developing more domestic energy, including oil, natural gas and Obama's definition of evil, coal.

And Obama's claims about drilling are false, according to University of Maryland Prof. Peter Morici:

The liberal theocracy in academia, the media and the Democratic Party leadership relentlessly expounds that drilling for oil in the United States won't much affect U.S. gas prices, because petroleum prices are set in global markets. And, more domestic oil production or U.S. access to Canadian petroleum won't much change global supplies, or the pace of economic recovery and unemployment.


Oil prices paid by U.S. refineries in the Gulf do move with global prices but not in lockstep. Despite a recent reduction in U.S. refinery capacity, increasing North American production would lower refinery acquisition costs.

U.S. refineries, like others around the world, are built to handle the special characteristics of oil produced by their primary sources of supply. And gasoline produced by individual refineries is not wholly fungible either—differing fuel characteristics are required across the United States and Europe to meet environmental standards. …

For years, prices for West Texas Intermediate and North Sea Brent moved closely, but now WTI is selling for $17 less than its North Sea counterpart.

This indicates the U.S. market is becoming somewhat separate and less wholly determined by global conditions; hence, more domestic production and increased access to Canadian oil would lower U.S. oil and prices—more drilling in the Gulf and elsewhere in North America, and the Keystone pipeline would significantly affect gas prices and employment.

More importantly, whether Americans pay $115 a barrel for oil from Saudi Arabia and Nigeria or obtained from the Gulf of Mexico and other domestic deposits makes a huge difference.

The annual trade deficit on petroleum is about $300 billion. Raising U.S. oil production to its sustainable potential of 10 million barrels a day would cut import costs in half, directly create 1.5 million jobs, and applying administration economic models for stimulus spending, create another 1 million jobs indirectly.

Overall, attaining U.S. oil production potential would boost GDP about $250 billion. Not bad, because it could be accomplished by increasing federal revenues from royalties and reducing the federal deficit, instead of adding to it through additional stimulus spending and subsidies to questionable solar and wind projects.

Obama's concern over gas prices is limited to how voter anger over gas prices will affect Obama's reelection. Investors Business Daily points out:

Nothing quite divides the elites from regular working folks like a spike in the price of gasoline. To the latter, it's a blow to the household budget. To the former, it's a teachable moment.

The lesson always seems to be twofold. One theme is that there's no fighting higher gas prices. The other is that there is plenty you can do to adjust and, in the process, help build a better world. …

But most Americans are car-dependent and will remain so for at least a few more decades.

Bicycling to work, for instance, is an idea that might make sense in a few college towns with good year-round weather. That's a short list.

Waiting years for a rail line to be built to your neighborhood doesn't exactly meet your short-term needs. And, contrary to much wishful thinking, hybrids still carry a steep premium.

For most of the 99%, the only solution to high gas prices is lower gas prices.

So what can be done about gas prices? Contrary to Obama, far from nothing, says Steve Maley:

1. Commit to a strategic goal of North American energy security. That includes reasonable and responsible domestic drilling. That includes taking the lead on the Keystone XL Pipeline; we could find a way to make it happen while addressing the legitimate environmental concerns of Nebraskans. It includes a commitment to maintaining the Trans-Alaska Pipeline System and opening ANWR.
2. Ditch the anti-industry, anti-capitalist rhetoric. It is not the President's or the government's place to decide when an industry's profitability is "high enough". High oil company profits fund more drilling; more drilling means more future supply and lower prices. Besides, American oil companies are not owned by a cabal of wealthy executives, but by America's pension funds, mutual funds and private investment accounts. "They" are "us". …
4. Realize that Uncle Sam is in the energy business and is a partner in industry's success. Oil and gas royalties are the federal government's #2 source of revenue, after the income tax. Offshore slowdowns hurt not only industry and jobs, but government revenue. …
6. Trust that no oil operator wants to be the "next BP". The BP spill cost that company something on the order of $40 billion. Industry safety and environmental commitment is motivated more out of self-interest and less out of fear of the government. …
8. Declare hydraulic fracturing & well design to be the regulatory domain of the states, not the EPA. Geology and environment vary widely; Pennsylvania is not Louisiana is not North Dakota is not California. It is insanity to think that one broadly-applied set of rules can be applied to regulate industry without suffocating development.
9. Rescind the recently-enacted royalty rate increase for new onshore Federal oil and gas leases. Secretary [of the Interior Ken] Salazar's stated rationale for increasing the government's take by a whopping 50% – from 12.5% to 18.75% of gross production – was to equate onshore royalties with the offshore royalty rate. That makes no sense. Higher royalties mean less drilling, poorer economics of production and premature abandonment of wells. Besides, an IHS-CERA Study recently showed that the federal government's total take of offshore cash flows makes the Gulf of Mexico the second-most punitive fiscal regime in the world, after Hugo Chavez's Venezuela. …
Bonus #11: Get real about the promise of alternative fuels. Recently you said: "You've got a bunch of algae out there; If we can figure out how to make energy out of that, we'll be doing alright." Maybe so, but I will stick my neck out and say it ain't gonna happen, at least not in my lifetime, not on a scale that will impact pump prices.

Not widely known is the fact that, when you put gas into your car, the federal and state governments get more money out of that tank in taxes than the oil companies get in profits. That would explain why you don't hear anyone suggest lowering gas taxes.

The particular state contribution to the aforementioned $3.629 is the state's minimum markup law, which requires that gas prices be set at the higher of 6% more than costs or 9.18% more than the average wholesale price. A U.S. district judge blocked enforcement of the law in February 2009, but a three-judge panel of the U.S. Court of Appeals reinstituted the law in September 2010.

Notice Wisconsin gas prices from February 2009 (far left) to September 2010, and what's happened since then: