Newt's Despicable Gasoline Price Promise (Can he really lower prices to $2.50?)

Former House Speaker and current Republican presidential hopeful Newt Gingrich has promised voters that gasoline will be $2.50 per gallon after he becomes president. In fact, Gingrich thinks he may even be able to get the price down to $1.20 per gallon. "His promise to go the moon is easier to achieve," says Michael Lynch, president of the oil consultancy Strategic Energy and Economic Research. "We may see $2.50 per gallon gas again, but not because of anything that any president does." Gingrich’s pitch is attractive to consumers who are confronting pump prices that average $3.83 per gallon and which are expected to go even higher later this year. Why doesn’t Gingrich promise free daily ice cream and cake for everybody while he’s at it?

Sadly, Gingrich has apparently gotten some traction among voters with his specious promise. After all, who does not hate high gas prices? A recent Washington Post/ABC News poll reports that two-thirds of Americans disapprove of how President Barack Obama is handling the gasoline situation. In addition, only 38 percent approve of his energy policies, down from 55 percent in August 2009.

Why are gasoline prices going up? It’s simple—because oil prices are going up. The price of crude oil accounts for about three-quarters of the price of a gallon of gasoline. Taxes account for another 12 percent or so; refining is about 6 percent; and transportation and distribution is another 6 percent. So what accounts for the higher price of petroleum? Again, it's simple: demand and supply.

Gingrich and others point out that actual U.S. consumption of gasoline is down by 7 percent since 2008. Cars are more efficient and people are driving less due to the slack economy. In addition, domestic crude oil production is up and gasoline inventories are ample. So why are prices still going up?

Since the impersonal forces of demand and supply are not sufficiently evil, consumers and their politician enablers cast about seeking malefactors to blame for their pump pain. Enter the speculators. Taking a page out of the usual playbook, President Obama ordered the U.S. Justice Department to “reconstitute” the Oil and Gas Price Fraud Working Group to look into possible criminal behavior and misconduct in oil markets.

Of course, this is the same working group that the president established last spring to investigate the role of speculative malfeasance in higher gasoline prices at that time. Gas prices later dropped over the summer and the working group never issued any reports. It’s all a bit of policy theater designed to distract the plebes and deflect blame from the administration. As it happens, a report by the Federal Trade Commission issued in September of last year noted that while there has certainly been a huge increase in speculative interest [PDF] in oil futures, the FTC could find no clear link between a bigger futures market and higher oil prices.

While Obama engages in another round of policy theater, would-be President Gingrich says that he can cut the price of gasoline by opening more federal lands and offshore areas to drilling; allowing the construction of the Keystone pipeline from Canada; and popping the speculative bubble by releasing crude from the Strategic Petroleum Reserve.

While it is true that the Obama administration has ruled out drilling on vast areas of the federal estate, the number of oil and gas rigs operating in the U.S. has nonetheless increased markedly in recent years. Indeed, it is not surprising that as the price of petroleum soared so too did the number of drilling rigs. The oil and gas rig count has increased to more than 1,900, up from around 700 [PDF] in 2000. As an historical note, the total number of U.S. oil and gas rigs peaked at more the 4,500 [PDF] in 1981.

The president was also a step ahead of the former House speaker since he opened the spigot to release 30 million barrels of crude from the Strategic Oil Reserve last summer in an effort to drive down gasoline prices. However, the price of gasoline had already begun falling from its peak in May. It's true that last year Obama blocked construction of the Keystone pipeline, which would have begun transporting in 2013 more than 400,000 barrels of oil per day derived from Canadian oil sands. Adding more supply certainly tends to put pressure on prices, but this still would have only increased daily global supplies by less than one half of 1 percent.

Gingrich has also argued, “We've seen an explosion of opportunity in natural gas through drilling. The result is the price of natural gas has dropped from $8 per 1,000 cubic feet to under $3 per 1,000 cubic feet.” He then reaches the conclusion: “You apply that same principle to oil—you would actually lower the price of gasoline below $2.50. I would be very cautious at $2.50. It would be down in the $1.20 range.”

Until recently the prices of natural gas and oil have moved in tandem, but fracking shale gas has so increased the supply of natural gas that the result is a dramatically lower price. Once sold on long-term contracts linked to the price of oil, more and more natural gas is purchased in spot markets. However, this delinking of natural gas from oil prices occurred in the U.S. largely because natural gas can be transported largely to the domestic market. Gingrich ignores the fact that oil is traded and its price set in the global marketplace. So unlike natural gas, the relevant supply and demand situation is international, not domestic.

While Gingrich is right that domestic demand for oil is down, global demand is up. In addition, global crude prices start rising when global spare production capacity begins to drop below the threshold of 3 million barrels per day. Spare capacity prevents and cushions price shocks. During the 2008 price run-up to $147 per barrel, global spare oil production capacity fell to as low as 1 million barrels per day.

If Gingrich wants to lower oil prices, perhaps he should stop his saber-rattling against Iran. “If there’s an effective diplomatic outreach here that pushes back the prospect of a military confrontation with Tehran, we probably have something on order of $20-$30 a barrel geopolitical risk premium that could drop out of the oil price very dramatically,” wrote Tim Evans, energy analyst at Citi Futures Perspective in New York in the Financial Times. Oil consultant Lynch agreed. "The recent run up the price of oil is almost completely the result of concerns about losing Iranian oil or Iran attacking shipments in the Strait of Hormuz," he says.

The coordinated boycott of Iranian oil being spearheaded by the United States is increasing uncertainty in the global oil market. An attack on Iran to stop its nuclear program would clearly disrupt oil supplies. There is not enough current spare global production capacity to make up for the loss of Iran’s 3.5 million daily barrels of oil. Lynch believes that as the Iranian situation drags on, crisis fatigue will set in among oil traders. He also points out that global production capacity is increasing. Thus Lynch predicts that the price of crude will likely drop back to $90 per barrel and the price of gasoline to around $3.25 per gallon by the end of the summer.

Lying to voters about his power to command the law of supply and demand is as close to despicable as anything I can imagine. Well, actually not. But it's still pretty despicable.

But won't OPEC just decrease production if the price drops due to exportation from the US?

Of course they could do just that. But cutting supply would make the price we receive higher as well. And, with increased domestic supply, there is nothing to prevent offering domestic customers a lower rate because of lesser costs involved in serving them. E.G., last time I bought gas in Venezuela it was $0.15/gallon!!

Real World: (Now that I have solved the problem and finished my beer) All of these "solutions" come with a long start-up period. The important thing is to start. Just the signal of our intention and resolve will have a great effect on the market.

GW was a huge disappointment to me on energy (or oil) policy. In a way, we are paying for his lack of vision in absolutely failing to lock us into a policy and program of much more nuclear coupled with massive increases in domestic production.

What our sitting POTUS and his commie cohort ... being technically challenged... fail to grasp is that the world will run on petroleum for at least another 200 years and that seeking alternative power in the short term from the Sun, Moon, Wind, and Algae are scientific stupid pet tricks.

Remember Will Rogers? He said the answer to the NAZI submarine Menace was to "Boil the Oceans." As to how that was to be done was a "problem for smaller minds to solve." That's our Left today!

"Newt's Despicable Gasoline Price Promise (Can he really lower prices to $2.50?)'

Well the main reason gas prices (and just about everything else) are higher is because the dollar has been shredded by the fed printing money as fast as the presses can roll.

So unless Newt can magically do away with that Trillion plus dollars dumped into circulation these last few years I don't see how he will fulfill such a promise.

Further if he could manage to get the Federal Reserve to reduce the money supply and it happens too quickly it can cause waaaay more problems then we have now. For one thing it would tighten bank lending to the point that very little business speculation (as in start up capital) and such would cause even more hiring problems.

Its one of those problems that you can get into very quickly but takes time to get out of least you make it way worse.

Drilling more will help somewhat but it will be a temp fix at best because economies like water seek their own level. To really fix higher prices you need to make the dollar stronger and to do such you must reduce the amount in circulation... but slow and steady and make sure you telegraph your moves so the markets can adapt as we go.

“Who is to say it will not be exported?”

It wouldn’t really matter if it is exported. The world needs a certain amount of oil. They don’t care if it comes from the Middle East, Russia or your grandmother’s flower bed. The price of oil, per barrel, is based upon two things: 1) the current supply of oil in the world market that is being pumped out of the ground and 2) the expected amounts on the world market to be pumped out of the ground in the future (the speculators).

If the United States starts pumping to increase worlwide supply then both conditions affecting the price of oil will cause the price per barrel to decrease. The world markets will have more oil and they will also have the expectation of increasing future amounts being pumped out of the ground.

OPEC couldn’t realistically reduce their supply for the long term because the slack could be picked up, partially, by the United States. In all likelihood, OPEC countres would also increase supply to keep current profit levels up — less profit per barrel means they need to produce more barrels to keep the same profits. This cycle could then continue until prices are as low as they can possibly go and remain profitable for the oil companies.

The United States could easily change the game with its existing reserves and with new technologies for retrieving oil. In a free market, supply and demand on the global oil market works as effectively as supply and demand for a local turnip farmer.

Drill everywhere? - Yes open all areas.

Stop speculators - Speculation can only drive price high when the supply is tight relative to demand. Oil is traded around the world and those markets are beyond our control. We would be far better off increasing supply for a more stable market. This also gives OPEC less ability to inuence price.

The British had that area - it was one of several mandates they owned...there’s song from the British military that even talk about what a dump Aden was when serving as a post...

The Brit’s developed and turned it over to the Saud Tribe - the largest camel thieving tribe in the area for security - they wanted them to run it and bring them up to our standards of living - which was a failure on the political side. The US might have introduced the concept of using the gases from production to burn and convert water to steam in turbines to generate electricity - up to that point - the ME oil production - those gases where going straight up into the air...they had no concept of what they were handed - only that it gave them instant funds to start promoting their Wabbi sect mindset...

again - either way - we created this monster! I learned all this from a Brit sitting outside of Doha one blistering summer day on a break waiting to get some chow back in 2003...amazing what the daily grunt knows...

— Ronald Bailey is Reason’s reckless irresponsible political demagogue pretending to be a “Science correspondent”

Federal and state taxes on gasoline add $1.00 to the price alone. If this clown bothered to learn the facts of the issue rather then mindlessly regurgitate his Obama worship dogmas, he would know $2.50 a gallon gas is VERY feasible. It’s our Government Class’s mindless pandering to the “Environmental lobby” that keeps our prices high.

True, the Brits had mandates, presence, or sumping in that area, but I read from that book, "Munich in the Middle East," that the Brits blundered badly in Saudia, said there wasn't oil, and the Americans found it and used WWII to further trash Britain's interest in that region.

I do like the way Ayn Rand explains it:"Rights are not involved in those primative societies.They make a deal with us. They want to bring us in to develop their oil and then they try to exploit and literally murder us by means of that oil. That is an unforgivable crime."

Ayn Rand's last appearance on the Phil Donahue show.

So what accounts for the higher price of petroleum? Again, it's simple: demand and supply.

Close. They forgot Speculation about Supply and Demand.

Newt's plans not only address supply (our own oil), but also soothe concerns about our future supply, so prices fall, all the while diminishing OPEC's influence as well as Russia's over us and over world oil prices.

Newt's ideas are the snowflakes that will cause an avalanche of lowering energy prices, thus increasing our economy, employment and eventually the revenues required to fix the economic damage obama and the socialists have done.

Our kids and grandkids and their kid and grandkids shouldn't have to pay for the damage done on our watch. We have sold them out so we could have free stuff now. Their inheritance is the bill for our self importance, assuming the country still exists.

That's exactly how to get lower prices for the consumer....if we started using USA oil and lessen our import, the arabs have to reduce their output to keep the price up which means shutting down wells, putting people out of work and less income.....(exactly what Obama is doing).

Keeping it here?? Cheaper than shipping.

Let's get this straight, shall we? The Brits knew damn well there was oil in Saudi Arabia. Two factors mitigated against they're getting at it:
(1)They offered the Saudis 10% of the proceeds, the same deal they were giving the the Persians.
(2) The Saudi's were advised by the famed English Arabist, St.John Philby, (father of the notorious defector Kim Philby) who hated his own nation so much he advised the House of Saud to go with the Americans.
(3)The Americans offered the Saudis a 50/50 deal (after expenses) and many other expensive benefits!

The other thing to realize is that The House of Saud is not some ancient dynasty. They bluffed and battered their way to power over most of the peninsula after WWI. E.G. Mecca and Medina were bartered to them in exchange for making the ruling families of those two cities the kings of the newly created Jordan and Iraq! The House of Saud ruled Riyadh and you can still visit the remains of old Riyadh, a now abandoned city of mud brick.

St. John Philby essentially sold the Saudis on the US and vice versa. During WWII and the Fifties, we and Saudi Arabia became joined at the hip.

>>>>>>>>>>>>>>>>>>>>>>>>>>And then soon afterwards the British made a blunder.

In 1933 geologists advised the (British controlled) Iraq Petroleum companythat the prospects for oil in the Saudi Arabian Hasa oilfield were poor, so the company allowed itself to be outbid for oil concessions by the Americans who paid $50,000 in a deal that yielded enormous profits. James A. Moffett, a senior oilman associated with what later became known as Aramco, the Arabian American Oil Comany, announced triumphantly "through luck on an investment of $50,000 you discover oil and on this basis you acquire a concession in Arabia for $500,000 and find yourself after an expenditure of $27 million owning a property worth billions.

The discovery of the large oilfield near Dharan in Eastern Saudi Arabia was a turning point in U.. Middle East policy. From then on the United States was in the region to stay. American used the desperate straits into which World War II plunged Britan and France who urgently needed U.S. aid, to abroage the Red Line Agreement of 1928 and thus ensure herself substantial control of Mideast oil.1<<<<<<<<<<<<<<<<<<<<<<<<<

Munich in the Middle East

pp 34-35

The Texans of what became Aramco knew all about the salt Domes of the Eastern Provinces and were ready with the cash! Moffett was of course, being a bit disingenuous. They pulled off a fabulous deal.

And of course, having the greedy British traitor Philby (a genetic thing?) on their team didn't hurt! Amazing the myths that he invented for the Saudis. Today, these worthy oriental gentlemen actually believe his PR... the gist of which was that the Wahabbi Muslims were akin to the great Protestant Reformers like Calvin ... Puritans striving to reform Islam; The House of Saud the equivalent of the Plantagenets!

The Saudi rulers ... whatever their very real faults ... are probably a lot better for us ...and for Israel ... than what waits in the wings to overthrow them. They use their enormous wealth to keep friend and foe alike under control.

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