The Astounding Fuel Price Conundrum
Wolf Richter www.testosteronepit.com
Republicans have been out in force, trying to tar President Obama with gas prices that are approaching $4 a gallon, and that appear to be shooting for an all-time high into the driving season. But no one has even tried to out-claim Newt Gingrich, who in his desperation claimed that gas would miraculously plunge to $2.50 a gallon if he became President but would hit a world-ending $10 a gallon if Obama stayed in power.
The strategy worked: Obama’s disapproval rating on handling the "situation with gas prices" has reached 65%, and his disapproval rating on the economy as a whole has jumped to 59% over the weekend from 53% in early February.
Meanwhile, oil companies worldwide and our special friends, like Iran, are drooling over these gorgeous prices, while consumers are getting rattled as the cost of a tank of gas is dreadfully close or already beyond their pain threshold. Gallup, which excels at finding irrelevant averages to everything, has found one for the pain threshold as well: $5.30 a gallon, the price at which people would "make significant cutbacks" in spending in other areas. In fact, 17% would do so with gas under $4 (now happening), and an additional 28% would do so with gas between $4 and $4.99. So 45% would cut back significantly in other purchases before gas ever hits $5.
The White House feels the heat—and is fighting back. Already, 85% of the people want Obama and Congress to take "immediate action" to lower gas prices, and 65% actually believe that the government can do so. Consequently, you can’t turn on the TV today without seeing Obama discussing energy.
The White House also released a report that touts energy feats already accomplished or to be accomplished, some as soon as 2025. Many of them are laudable, such as reducing oil imports by a third by, well, 2025—they're already down by a million barrels a day over the last three years. Yet, in the biggest non sequitur of mankind, given that high fuel prices sparked the report in the first place, the report also brags about the refining sector that has become ... a net exporter.
Turns out the place where gas prices tend to be the highest in the nation, San Francisco....
.... is just across the Bay from five major oil refineries that together are the largest exporters of petroleum products in the nation (Brookings Institution, New York Times, March 8, 2012). In 2010, the period of the report, the five refineries exported $7.8 billion in petroleum products, an increase of 10% over prior year. Other refineries on the West Coast have also experienced booming export sales. Last December alone, West Coast refineries exported over one million barrels of gasoline, eight times as much as in 2007.
The Census Bureau's trade report confirms the trend nationwide: in January exports of petroleum products jumped 16.8% to $8.9 billion from December's $7.6 billion, and were up 8.8% from January last year.
Why? Because that’s where the money is. Domestic demand is stagnating. In California, based on data from the State Board of Equalization, which collects taxes on motor fuels, gasoline sales have actually slid 14% from 2006 through last year:
People in California—and in many other places—are driving slightly less, and their vehicles are slightly more fuel efficient. It adds up. So we’ve got a little problem—sagging demand—that should push gasoline prices down. But business is business:
“Our options were to reduce production, lay off workers, close refineries, or find markets for our products," said Tupper Hull, a vice president at the Western States Petroleum Association. And those markets are in Mexico, Brazil, China, and other developing countries where demand for refined petroleum products is growing.
Oil and refined petroleum products are worldwide commodities whose prices are determined by the markets, not Newt Gingrich. Or President Obama. Central banks, however, are another story. They’ve handed trillions to their cronies for the purpose of driving up asset prices. And some of this money has hit oil. For just how helpful this has been, read.... The Fed’s Rain Dance at the Bottom of the Stairs.
As always, consumers pay the price, this time at the pump. They’re already squeezed, particularly those at the lower half of the income spectrum. And people who just finished their higher education, the future of America, are struggling like never before. For the whole fiasco of the costs of higher education, and how they're mauling young people, read.... Next: Bankruptcy for a whole Generation.
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