What is Driving the Price of Fuel?

By Apr 9, 2012, 7:02 AM Author's Blog  

“Do you feel it?”

“Feel what, LD?”

The hand inside your wallet cleaning you out as you go to fill your tank. I felt it yesterday afternoon when I filled the tank and saw the price for regular gas at $4.35/gallon.

Pissed off? You bet I am. I personally think it is likely to get worse as we approach the summer months. What is driving the price of fuel?

Is our domestic economy so strong as to drive this spike in the price of fuel? Real personal consumption expenditures, the primary focal point within GDP, grew at 2.0 in the 4th quarter 2011. I would not qualify that as overly robust for an economy that hit the rocks hard and is now struggling to regain its footing.

What about China? The question many economists are posing is whether The People’s Republic can manage a soft landing. What does that mean for commodities in general? Bloomberg addressed this topic recently in writing, China Soft Landing May be Hard for Commodity Exporters,

The good news: China’s government will engineer a soft landing. The bad news: Even a soft landing is painful for industries that have become dependent on the world’s fastest-growing major economy as their main profit engine.

“China is definitely slowing down,” said Andy Mantel, founder and chief executive officer of Pacific Sun Advisors, an asset manager in Hong Kong. “Over the course of a few months, the numbers will be quite weak.” Mantel said he’s optimistic China nevertheless will avoid a hard landing. “People’s expectations are too high, and you have to allow China to grow as it can.”

Is the tension surrounding Iran singlehandedly leading to higher prices at the pump? It is certainly playing a role. This situation does not appear to be getting better anytime soon.

Are higher gas prices actually desired by the Obama administration? There is a real debate about this point. I personally believe the Obama administration would like to see lower gas prices currently in order to support our economy, personal consumption, and his chances of re-election. I also believe President Obama would not mind seeing higher gas prices in the future in an attempt to change Americans personal habits and our dependence on foreign oil. A recent Fact Checker report, The Claim That Won’t Die: Did Obama Administration Want Higher Gas Prices? covers both sides of this argument. In mid-2008, then candidate Obama said,

First, we’ll discuss the interview between then-Sen. Obama and CNBC’s John Harwood. Here’s an exchange from that meeting:

Obama: I think that we have been slow to move in a better direction when it comes to energy usage, and the president frankly hasn’t had an energy policy. As a consequence, we’ve been consuming energy as if it’s infinite. We now know that our demand is badly outstripping supply with China and India growing as rapidly as they are.

Harwood: So, could these high prices help us?

Obama: I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps to help people make the adjustment, first of all by putting more money into their pockets, but also by encouraging the market to adapt to these new circumstances more quickly, particularly U.S. automakers, then I think, ultimately, we can come out of this stronger and have a more efficient energy policy than we do right now.

Interesting. Do President Obama and Fed chair Ben Bernanke define “putting more money into their pockets” as an S&P 500 level of 1400? Are gas prices of $4.35 thus merely a side effect of monetizing the debt and goosing the markets?

Sounds like a perfectly logical helping of ‘sense on cents’ to me.

I’m still pissed off and I personally believe most Americans will employ a “throw the bums out, anti-incumbent vote come this fall.”

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One Comment

  1. John B. Egan says:

    We have more oil rigs drilling in the USA since Baker Hughes (drilling company) began keeping records back in 1986 and we have a glut of oil at major storage facilities such as Cushing. That’s because Americans are driving less. In fact, the US has for the 1st time in decades become a major exporter of refined products. All the hype you read about the Keystone Pipeline and the present administration’s desire to kill ‘drill, drill, drill’ is plain false. In fact, it’s just a GOP talking point. I’m sure that Big Oil is also quite happy to feed these types of headlines to reporters as Obama has talked about canceling the massive tax credits that Congress has protected for an industry that is excessively profitable.

    Follow the money: The GOP receive the bulk of Big Oil’s donations, and Big Oil receives profits and Billions in tax credits when we should be looking to legitimately close our budget gap. Throw in our unregulated trading speculators (who account for $20+ per barrel of oil if you follow oil news) and it’s pretty obvious why gas is as high as it is. It certainly is not a President that is heading into an election in November. That is simply sublime idiocy accepted by those that listen to FOX News.

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