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Murdoch’s Wall Street Journal and Koch-Fueled Cato Agree: “It’s Not Obama’s Fault That Crude Oil Prices Have Increased”

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"Murdoch’s Wall Street Journal and Koch-Fueled Cato Agree: “It’s Not Obama’s Fault That Crude Oil Prices Have Increased”"

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Wall Street Journal: “U.S. gasoline prices, like prices throughout the advanced economies, are determined by global market forces. It is hard to see how Mr. Obama’s policies can be blamed.”

Cato Institute: “Is President Obama responsible for spiraling price of gasoline? Republicans say yes, but the facts say no.”

How obvious is it that oil prices, set on a world market, are all but impervious to government policies? So obvious that even Rupert Murdoch’s WSJ and the Koch-fueled Cato Institute feel compelled to make the case.

The WSJ was responding to Newt Gingrich’s claim, “The price of gasoline when Barack Obama became president was $1.89. All of this gigantic increase came from his policies.” In its debunking of “Gingrich’s Gaseous Argument,” The Journal offers an especially telling statistic:

Mr. Gingrich ignores the basic fact about U.S. gas prices: They are largely fixed by the price of crude oil, which is determined by global supply and demand.

When Mr. Obama was inaugurated, demand was weak due to the recession. But now it’s stronger, and thus the price is higher.

What’s more, producing a lot of oil doesn’t lower the price of gasoline in your country. According to the U.S. Energy Information Administration, Germans over the past three years have paid an average of $2.64 a gallon (excluding taxes), while Americans paid $2.69, even though the U.S. produced 5.4 million barrels of oil per day while Germany produced just 28,000.

Duh?

In an essay that appeared in U.S. News & World Report earlier this month, “It’s Not Obama’s Fault That Crude Oil Prices Have Increased,” Cato scholars lay out their case:

Why have gasoline prices increased since the start of the year? The simplest explanation is that the price of crude oil has increased. Specifically, the spot price for Brent (North Sea) crude has increased $16 a barrel since January. Given that there are 42 gallons to a barrel, that works out to a 38 cent increase in the price of a gallon of oil. Spot prices for gasoline trade in New York have increased about 41 cents per gallon over the same time frame. So there you go.

Why is the price of North Sea oil relevant to the price of gasoline in the United States? Well, we import gasoline refined in Europe from North Sea crude. Even though these imports constitute less than 10 percent of U.S. gasoline consumption, they are necessary to satisfy domestic demand and their price sets the market price for all gasoline regardless of whether other cheaper crude sources are used to refine most of our gasoline.

Why is the price of North Sea crude rising? One possibility is that supply is down. North Sea (British) production has been decreasing for some time. During the first quarter of 2007, it was 1.7 million barrels a day, or mbd. By the end of 2011, it was down to 1.1 mbd. Norwegian crude oil production has likewise decreased from 2.7 mbd in the first quarter of 2007 to 2.1 mbd at the end of 2011. And global demand is bidding up the price of crude oil from the North Sea and elsewhere.

Ironically, during the same time period, U.S. crude oil production has marched upward for the first time since 1971. Since the start of 2007, U.S. production has increased by 2.1 mbd. Sure, more domestic oil creates the possibility of fewer refined imports tied to the price of Brent crude, but given that the price of Brent sets the price for crude generally, the result would be more profit for domestic crude producers rather than significantly lower gasoline prices for Americans (not that there’s anything wrong with that).

So despite the popular perception of President Obama as anti-oil, domestic oil production is increasing for the first time since the Johnson administration…. Unfortunately, presidents get blamed for world market changes that occur during their time in office … but generally, they do not cause them.

The Cato Institute, originally the Charles Koch Foundation, is in the process of being officially taken back by the Kochs, who I expect may take issue with Cato’s rare broken-clock sensibility on issues like this one.

Still, let’s enjoy the rare agreement between CATO, the WSJ, and the Center for American Progress:

More Drilling Won’t Lower Gas Prices“: Soaring Domestic Production Has Failed to Ease Pain at the Pump

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27 Responses to Murdoch’s Wall Street Journal and Koch-Fueled Cato Agree: “It’s Not Obama’s Fault That Crude Oil Prices Have Increased”

  1. BillD says:

    It’s nice that WSJ and Cato are not quite 100% knee jerk partisan. I guess that can leave that niche to Fox “News.”

    • hugo says:

      Anyone interested in seeing some Fox BS propaganda about Gas prices should look up “Fox News pumps fear over gas prices” Google it. You’ll laugh about it so hard.

    • P Kearn says:

      Sen Ron Wyden was investigating the manipulation of gasoline supply by the deliberate closing of refineries and now more refineries are closing.
      Republicans defunding the CFTC has removed its invetigative powers allowing speculators almost total control over our price at the pump.
      Without stopping the ongoing increase caused by speculation the American Economy is severely jeopardized once again by Wall Street

  2. Sasparilla says:

    It’s nice to see this from the WSJ – but its important to understand this a single author there and isn’t an Editorial by the WSJ (which I doubt we’d ever see since the board is so compromised).

    As it says for the author – “Rex Nutting, MarketWatch’s Washington-based international commentary editor, checks the facts behind financial and economic pronouncements of executives, pundits and politicians.”

    All that said, I’m still surprised they put this up, nice to see some truth with regards to oil there.

  3. Mike Roddy says:

    It gets me a little worried when WSJ and Cato throw a little bone to Obama. Does this mean (since he’s likely to win reelection) that they believe they have him “handled”?

    • Scottie Up! says:

      Dont forget the SPECULATORS!, they add as much as 20% to the cost of GAS. We would be better served if all of the people who bought “oil futures” had to take delivery of said oil. This would Really help reduce the cost of speculation in the price of oil.

  4. Pete Dunkelberg says:

    As an oil producing country we should pay much less per gallon. Oil exports subsidize the domestic price in other producing countries. Prices range from 18 cents to $ 1.20 per gallon. Ours is being pumped out for export while Big Oil profits. When they empty our wells you learn something about prices.

    H/T and details at Daily Kos.

    • Tom King says:

      Your theory would have more merit if US oil production was greater than consumption.

      http://www.flickr.com/photos/gdsdigital/4056035804/

      • Josh D. says:

        Well, given that we are currently a NET EXPORTER, yes, domestic oil production (by definition) is greater than domestic oil consumption.

        Or am I missing something?

        • chopper says:

          what you’re missing is that we are not a net oil exporter. rather about half of our oil consumption is imports.

          we are currently a net exporter of petroleum products, but only by a little.

        • DonB says:

          What you are “missing” is that while we are still a net importer of OIL, we are now, at least briefly unless we get and count the export of Keystone XL oil, a net exporter of gasoline and other REFINED oil products.

    • Doesn’t work that way. I know, it seems like it should, intuitively, but it doesn’t. Oil sells for whatever price oil will sell for.

      First off, oil companies have no motive to sell oil for $2/gallon here when they can sell it for $4/gallon elsewhere.

      Second, they aren’t going to sell it at a loss; if they have to pay $2.50/gallon for it, they’re not going to sell it to you for $2.30/gallon just because you live in a place that makes oil, especially after paying to ship it. And it’s not like beer; they can’t really sell their American-produced oil for one price, and their imported oil for another.

      The only thing that’s going to change that is if the government subsidizes it, which various governments do, to varying degrees.

      • dberry8953 says:

        Yeah instead of our government subsidizing oil prices for the consumer, they subsidize oil company profits. What’s wrong with this picture? (No need to answer, rhetorical question)

    • Pete Dunkelberg says:

      Tom king, you have a good point. Our export profits (if not all given to the Export companies) probably wouldn’t get us into the lowest ten gas price countries.
      http://www.csmonitor.com/World/Americas/2011/0913/World-s-cheapest-gas-Top-10-countries/Venezuela-0.18-per-gallon-0.05-per-liter.
      Still, we are letting Big Oil pump us dry and keep all the profits.

  5. David F. says:

    Of course, he isn’t. But that’s not going to stop the Republican candidates from saying he is. At least, he’ll have a good rebuttal to point to from a conservative perspective if they do try to make that argument.

  6. Cory Cabana says:

    I would like to see the chart that shows the “average” profit over the last few years of the oil companies.

    • Mike says:

      The oil companies have been pretty steady. The wall-street based financial speculators (like Goldman Sachs) who manipulate the oil futures market, however, have been getting rich.

    • Pete Dunkelberg says:

      The average would be just one number per company. I think you want the actual annual profits over the last then years and the trendline.

      • Cory Cabana says:

        OK, how about listing the profits because that is the true number/reason to the price of gas, 7 Billion reported last quarter, 10 Billion the quarter before that and so on all the way back to, what, 2001? No one is talking about that, why?

  7. Tim says:

    Frankly, I don’t know if the points you score on Gingrich by quoting the WSJ or the Cato Institute are worth the cost of the implicit endorsement you extend those disinformation outlets by citing them. Yes, they’re right about oil prices, but they are so often wrong and dishonest that I’m not sure the support their opinion offers is worth having.

  8. Casey says:

    I’m a little confused why this article needed to be titled in this way. How oil prices are set is common knowledge to anyone with an brain capable of curiosity (or access to google). Next do an article called: “WSJ agrees that it’s not Obama’s fault that the Sunsets” How oil prices and gasoline prices are set has not changed in over 70 years. The information is very public; oil companies explain it every earnings release. It’s surprising that people even talk about this anymore.

  9. RCG says:

    Perception is everything, and I think the WSJ and Cato are simply in damage control. Their Party’s positions on gas prices, as well as a whole host of other issues are absurd and therefore, in an effort to sound remotely objective they’re ceding on the most logical to explain, how gas prices are derived. The real issue is not the price of gas but, the corruption and greed surrounding it which keeps us dependent on it, thus lining the pockets of those who control it and our country. http://www.reepedia.com/archives/4339
    How do we move this country forward, when our so called leaders are only concerned with their own fortunes and legacies, and not the welfare of the people they’re in power to serve? The fight must grow fiercer for in the demand for alternatives to oil, even though oil would remain dominant for many years to come.

  10. johne says:

    The Highway bill currently before congress remains underfunded – funds come from gas tax- and spends 10 years of revenue in the next 2 years. No politician, despite the current debt and deficit levels, is suggesting that the gas tax be raised as it must be. The tax will raise less in the future as more efficient vehicles hit the roads-what then?

  11. jbinsb says:

    The true price of oil would be much higher if the costs/impacts were internalized instead of externalized, as they are now. Environmental damage, health problems of those living around wells and refineries, damage from pollution in cities and acid rain in forests — the oil industry pays for none of the mitigation or avoidance costs of these things. If they did, gas would be 6 or 7 dollars/gallon…or more. Were these costs internalized, we would see rapid progress in the direction of an economy that based on drastically less oil consuption.

  12. Roamingwolf says:

    I read some of the post here.. All I could agree on. in it form..

    Bottom line here, i hate to see speculator as to the futures market gone. Doing this could be the lead to a double edge swore here. Manying Less players in the market. So, Yes if news is out on Shortage of supply and or higher demand . Yes the price is going to go up on futures. BUT Remember that very same future market after it hit $140 a Brl. back in 2008. went down to $35 a Brl. that what it was in 1985, we saw $5 a brl for a VERY LONG time there after 1985. into the 90`s and then holding at $10. hit close to $20 from time to time.

    Prices didnt jump at the pump till Bush and Chaney -Halliburton gain Office.

    When we got back to $35 a brl. WELL, it wasnt from the RAW Crude Oil prices, it was . There wasnt any Refines to refine it fast enough. WHY, They closes them Down Your Oil Cartels..

    As in this article, where is the Math here, Bent Crude goes up. So all Oil goes Up, and as post #15 here. We pay the cost on Environmental damage or feel- take the future loses on our Livilyhood.

    NO, it is Your Oil Cartel , they well cap wells in a heart beat and then scream there is a shortage… that the One`s, NOT Speculators

  13. PAUL DONOHUE says:

    The CIA information web site says the U.S. oil production is 9.4 million barrels per day.
    Your EIA chart shows 5.7. Which is correct? and why the difference?