BY ROBERT L. BRADLEY JR. – Oil prices may have dropped to their lowest levels since February, but the government is still readying subpoenas for major oil companies as part of its investigation of gasoline prices.
After all, why let the facts interfere when there is good political theater to be made? As soon as consumers start getting antsy at the pump, you can expect politicians to start calling on the Federal Trade Commission (FTC) to target Big Oil and clamp down on a class of “Wall Street speculators” supposedly to blame for surging fuel prices.
Never mind that these investigations have repeatedly failed to turn up any evidence of price fixing. In 2005, Congress directed the FTC to spend “no less than $1 million” rooting out miscreants in the oil industry who supposedly were using Hurricane Katrina as pretext to raise prices. When the FTC couldn’t find any, the government doubled down on a new task force in 2006, and then again in 2008.
Guess what the reports found: limited supply plus growing demand equals higher prices. Amazing! Or as the FTC curtly noted in its 2005 report, “The vast majority of the FTC’s investigations have revealed market factors to be the primary drivers of both price increases and price spikes.”
Here’s a bold prediction: The Obama administration’s new investigation won’t uncover any oil company misdeeds either. Just like it will not find any heroes behind more recent price declines. In the short term, impersonal market forces govern prices in both directions.
To create better prices in the long term, effective public policy is needed — but that has been missing. In fact, while the president has been busy pointing fingers at everyone else, his administration’s policies have helped set the stage for unnecessarily high pump prices for years to come. Big Government — not Big Oil — should be on trial.
True, oil is a global commodity responding to supply and demand everywhere, and U.S. policymakers cannot be blamed for international politics that make oil supply scarcer or more uncertain. But Obama’s push to discourage oil production to appease beltway environmental groups is at odds with economic realities — and economic recovery.
The overreaction to the BP oil spill — the permitorium — was one job-killer and supply-drainer. Similarly, the postponement of the Keystone XL oil-sands pipeline project from Canada is bad news for tomorrow’s prices.
Obama’s weak-dollar policy also deserves its share of blame. Internationally, oil, like most other commodities, is priced in dollars. Here in the U.S., the government has been printing dollars like mad to fund our trillion-dollar deficit, shrinking the value of the greenback in the process. With the dollar worth less, it takes more dollars to buy a barrel of oil. That makes gasoline more expensive.
The president likes to point out that the price of gasoline will “inexorably” rise because developing countries like China and India are consuming more oil. But historically, greater demand has been met with greater supply — that is the ‘resourceship’ of markets responding to price signals and profit incentives. Government just needs to step out of the way for the supply response to bring oil prices down. The cure for high prices is high prices in a free market.
Contrary to the administration’s claims, the U.S. isn’t running out of oil; it’s running out of access. In fact, the U.S. is the only developed nation in the world today that restricts access to its offshore energy resources. Undeveloped fields in the Outer Continental Shelf alone contain an estimated 86 billion barrels of oil and 420 trillion cubic feet of natural gas. The Green River Basin in Wyoming, Utah, and Colorado contains another 800 billion barrels.
If President Obama were serious about lowering gasoline prices, he wouldn’t be launching investigations into oil companies; he’d be issuing permits and apologies!
Give his administration this: the refusal to increase domestic oil production or facilitate needed infrastructure is entirely consistent with its preferred energy policy, which is to let prices rise in order to force Americans to embrace less efficient but “greener” alternative energies.
But mandatory conservation through the back door is hardly pro-consumer or pro-economic recovery. What’s more: many of Obama’s favored renewable projects, like industrial wind turbines and ethanol, are hardly “green.” Just about any grassroots environmentalist group would agree.
Blaming speculators and launching investigations might create the illusion that the administration is “doing something” about high gasoline prices. But the government is merely deflecting attention away from its own bad policies. A more productive investigation would figure out how to promote free markets and stop the blame game.
Robert L. Bradley Jr. is the CEO & Founder of the Institute for Energy Research. His most recent book is Edison to Enron: Energy Markets and Political Strategies (Scrivener Publishing and John Wiley & Sons).