Obama and gas prices

As gas prices continue to rise, President Obama is under increasing pressure from both Republicans and the public to take action. Gasbuddy.com, which tracks gas prices, shows an increase of almost 70 cents per gallon in Georgia since Christmas. During the same period, the national average gas price has increased by almost 60 cents. The current national gas price is $3.794 per gallon, while Georgia is a few cents cheaper at $3.703. There may not be any relief in the near future. The Energy Information Administration forecasts that gas prices will stay near $4 per gallon through the summer.

To date, President Obama’s main response has been to blame speculators. In 2011, the president asked the Department of Justice to investigate oil speculators for possible fraud or manipulation of prices. McClatchy Newspapers found the Oil and Gas Price Fraud Working Group, a subgroup of the Financial Fraud Enforcement Task Force, has met “only four or five times since its creation.” President Obama ordered the group back to work last week while at the same time saying that it never stopped working.

Speculators are not the problem. OPEC is the cartel of oil-producing countries that sets the price for much of the world’s oil. The OPEC basket price for March 14, yesterday’s close of business, was $124.29 per barrel. Currently, oil is trading on the New York Mercantile Exchange between $103 and $106 per barrel. Oil is actually selling on the commodities market for less than OPEC is charging. This means that the “speculators” are actually bidding the price of oil down.

President Obama and the Democrats maintain that the president does not control the price of oil and therefore should not be blamed for rising gas prices. The Democrats did not feel that the president was so helpless when George Bush resided in the White House, however. Many blamed President Bush’s ties to the oil industry for 2008’s record spike in gas prices.

While it is true that President Obama cannot take action that will swiftly bring gas prices down, it is also true that many of his policies have contributed to the increase in gas prices. The president’s affinity for green energy and dislike for oil has led to policies that are hostile to oil producers. For example, although President Obama has taken credit for the fact that U.S. oil production is at an eight year high, he failed to mention that the increase was due to drilling permits issued under President Bush.

According to the Institute for Energy Research, the number of offshore drilling permits has fallen by more than 50 percent under President Obama. The percentage of applications approved has fallen from a historical average of 73 percent to the current approval rate of 23 percent. Approval time has increased from an average of 60 days to more than 90. The Obama Administration was held in contempt for continuing its moratorium on off-shore drilling after its executive-ordered ban was struck down by a federal judge. Even before the oil spill, one of President Obama’s first executive actions was to cancel 77 Bush-era oil leases in Utah. Further, the Obama Administration has also unveiled new regulation of fracking, the drilling technique that has made the oil and natural gas booms in Pennsylvania, Ohio, and North Dakota possible. Increased regulation may well lead to fewer permits in these areas as well.

Another high profile decision was President Obama’s rejection of the Keystone XL pipeline. Obama killed the pipeline in January after three years of study. In February 2012, the president lobbied Democratic senators to vote down a Republican bill that would have approved the pipeline according to Investor’s Business Daily, killing the bill a second time. The Canadian oil that would have been piped to U.S. refineries will now likely go to emerging markets in China.

The Energy Information Administration cites the closure of three refineries since September 2011 that supplied gasoline to the East Coast as a factor in rising gas prices. An additional refinery may be shut down in July if no buyer is found. The reduced supply has been partially offset by a new refinery in Delaware City, but has undoubtedly contributed to higher prices. President Obama engineered the purchase of Chrysler by Fiat, but has shown no interest in finding new operators for these refineries.

The Federal Reserve has also increased the money supply through quantitative easing, where the Fed buys securities from banks and expands the money supply. According to the N.Y. Times, the Fed has added more than $2 trillion to the money supply since the economic crisis began in 2008. When more money is in the system, each individual dollar is worth less. As supply increases, demand decreases.

As Republicans on Congress’ Joint Economic Committee noted in report detailed in CNS News last year, “Oil is an international commodity that trades in dollars. The value of the unit of exchange, in this case the dollar, plays an important role in determining the ‘headline’ price for the underlying commodity.” The report further notes that the first round of quantitative easing resulted in an increase of more than $17 per barrel of oil. This is approximately an increase of more than 50 cents per gallon of gasoline.

Another major factor in the high price of gasoline is instability in the Middle East caused by the Iranian nuclear program. The Iranian quest for nuclear weapons predates the Obama Administration, but the president has frittered away time with fruitless negotiations while the Iranians worked and used diplomacy as a delaying tactic.

In the meantime, Obama has done everything possible to prevent Israel from launching a strike on Iranian nuclear facilities, even after Iran attempted a terror bombing inside the District of Columbia in October 2011. He is right that an Israeli strike would probably result in an Iranian blockade of the Persian Gulf causing oil prices to skyrocket, but he seriously underestimates Iranian Twelver religious fervor and their resolve to destroy Israel. The Iranian leadership believes that a Muslim messiah is coming soon and that their mission is launch a nuclear war to prepare the way for him.

A conventional war in the Middle East would be disastrous for oil prices. A nuclear war in the Middle East (or worse: one that reaches American shores) would be even worse. As the Iranians draw close to becoming a nuclear power, there is less time for sanctions to work and less chance for a peaceful solution. The price of oil includes a risk premium for the possibility of war in the Middle East that Obama’s inaction has made more likely.

Finally, President Obama is a bit disingenuous about wanting cheaper prices for gas and energy. In September 2008, Dr. Steven Chu, the man who later became President Obama’s energy secretary, told the Wall Street Journal, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Chu wanted gas prices to increase in order to coax Americans into buying more energy-efficient cars and encouraging shorter commutes.

Barack Obama himself, in a January 2008 interview with the San Francisco Chronicle that can be heard on HotAir.com, said as a candidate that “under my plan of a cap and trade system, electricity rates would necessarily skyrocket.”  This would have been bad news for everyone, including people driven to purchase electric cars by Dr. Chu if cap-and-trade had passed. Although Congress never passed cap-and-trade, President Obama’s EPA is implementing carbon regulation unilaterally.

President Obama cannot personally control the price of oil, but his policies do have an effect on it. On balance, the president’s policies are contributing to the rising gas prices. The statements of candidate Obama and Dr. Chu are evidence that they knew exactly what they were doing all along.

Originally published on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/obama-and-the-price-of-gas

Rising fuel costs may hurt airlines

The airline industry is one of the segments of the economy that is most vulnerable to steadily climbing oil prices. Fuel is a large part of the cost of running an airline and when fuel prices increase it cuts into an already thin profit margin. When fuel prices spiked in 2008, CBS News reported that for every $1 per gallon that the price of jet fuel increased, it cost each airline an extra $60 million per year.

Airlines coped with higher fuel costs in several ways. To passengers, the most obvious methods were fuel surcharges on tickets and adding fees for baggage. The companies also grounded older, less fuel-efficient airplanes, changed schedules to drop less profitable routes, and furloughed (laid off) employees as the demand for air travel decreased. Four years later, fuel costs are once again approaching 2008 levels.

Although the airlines were starting to finally recover following the 2008 oil shock and subsequent recession, it is likely that the current increase in oil prices will blunt the airline recovery. As oil prices increase, so will the price of tickets. Basic economic theory teaches that as prices increase, demand will decrease and the airlines will sell fewer tickets.

The price of tickets is not the only problem however. Rising oil prices also mean that other goods and services will cost more as well. If people are paying more to fill their car with gas, as well as more for food, energy, and practically everything else then they will obviously have less money to spend on airline travel. The same logic applies to business travel as well. If the business is paying more for other budget items, there will be less money to send employees on business trips. In many cases, new technology such as online meetings and teleconferencing can take the place of face-to-face meetings.

A Raymond James analyst told FlightGlobal .com that 2012 could be a good year for the airlines if they focus on profitability at the expense of market share. In essence, carriers would keep capacity low and focus on profitable routes while maintaining maximum efficiency. This means slow or no growth for most companies with hiring mainly to replace attrition.

How bad the situation will be for the airlines is directly related to how high the price of oil goes. If the price of oil stays below or near its 2008 high, then the effect on the airlines will be minimal since bankruptcies and cost cutting have already made them much more efficient that they were previously.

However, as the Atlanta Conservative Examiner notes, if the Iranian nuclear crisis results in a military strike or war then the price of oil could double or more. This would be catastrophic both for the airlines as well as the economy at large. In that case, the outlook for both airline profits and hiring would be extremely poor.

This article originally published on Examiner.com:

http://www.examiner.com/aviation-in-national/rising-fuel-costs-may-hurt-airlines

Why gas prices are increasing

Drivers in Atlanta and around the country are noticing rising gas prices.  According to historical data from Atlantagasprices.com, the Atlanta average gas price is now $3.588, even higher than the national average of $3.543.  Atlanta area gas prices have risen over 13 cents per gallon in the past month and almost 50 cents per gallon in the past year.  A year ago, Atlanta gas prices were almost 10 cents below the national average.  Economists predict that $4 gas will be a reality this summer and could rise even higher.

In the past half century, oil prices have historically fallen during recessions and then climbed again as the economy improved. This pattern was seen in 2008 as gas prices fell from record highs in the summer to sharp lows after the onset of the economic crisis in August.  According to this historical view, gas prices could be expected to rise as the economy recovers.

The problem with this theory is that, as Dick Morris recently pointed out, the current economic recovery is an illusion.  Changes in the way financial metrics are calculated and cherry-picked statistics mean that while a recovery appears to be underway statistically, the reality is that most Americans are not experiencing it.  As Morris notes, the stock market may be up, but the volume of trading is down because most ordinary Americans are no longer in the market.  The housing markets are still not recovering four years after the real estate bubble burst in 2008.  Housing starts are still at 20 year lows according to the National Association of Home Builders.  Foreclosure rates are up while the average sale price of homes is down according to RealtyTrac.  Georgia remains one of the highest foreclosure states.

Unemployment rates may be down marginally, but it isn’t because more Americans are working.  The Bureau of Labor Statistics changed the population estimates used in determining the unemployment rate in January 2012 just before the rate took a downward plunge.  The BLS notes that “these annual population adjustments affect the comparability of household data series over time” because previous data was not corrected.  Unlike the unemployment rate, the civilian labor force participation rate has not shown signs of recovery.  Similarly, Gallup’s employment survey remains flat.

Even though the U.S. economy isn’t in recovery, other countries are doing better.  Growing economies such as that of China are demanding more oil, which causes the price to increase around the world.

In the absence of a recovery, there are other reasons for the increase in gas prices.  One obvious factor is inflation.  According to a January 2012 report from the Bureau of Labor Statistics, the core inflation rate was only 2.3 percent in 2011.  This rate does not include food and energy, however.  Energy costs have risen by 6.1 percent over the past year, while food costs are up by 4.4 percent. 

One reason for the inflationary costs is the Federal Reserve’s policy of quantitative easing.  The Fed has tried to stimulate the economy by injecting more dollars into the economy.  A basic principle of economics is that when supply increases, price decreases.  In the case of quantitative easing, this means that as the Fed orders more dollars into the system, the value of each individual dollar decreases.  Each dollar buys less as a result.  This means that interest rates stay low, which helps borrowers.  A problem, however, is that imported goods, like barrels of oil, cost more dollars because each dollar is worth less.

Another factor in the rising oil and gas prices is the unrest in the Middle East.  Oil prices often rise and fall with tensions in oil producing regions.  The Iranian nuclear crisis is bringing the region to the brink of war with the possibility of an Israeli strike on Iranian nuclear facilities.  Secretary of Defense Leon Panetta told GasBuddy.com that if Israel attacks Iran oil prices, currently at about $100 per barrel, could go anywhere “between $200 and pick-a-number.”  There is also a civil war raging in Syria and unrest in Egypt in the aftermath of the Arab Spring revolt there.  There is also uncertainty over the future of Afghanistan and Iraq, another major oil producer, as U.S. military operations in those countries end. 

Other factors are at play as well.  The Obama Administration’s decision to cancel the Keystone pipeline means that American refineries are denied a source of cheap oil from Canada.  Similarly, Obama has made it difficult and expensive to drill for oil domestically and off U.S. shores, which means that the supply of oil is artificially limited, keeping prices high.  Ironically, the oil from Canada that would have gone to U.S. refineries is likely to go to China after President Obama’s decision.

Other factors, such as weather and refinery closures can also affect the supply of oil and therefore the price.  These factors are reported and analyzed weekly by the Energy Information Administration on its petroleum page.  For example, there have been several Caribbean refineries that previously sent gasoline to the U.S. east coast have closed recently according to the February 23 report.

In the end, there are only two ways to reduce the price of oil and gasoline.  Either the supply must be increased or demand must be reduced.  The Obama Administration is taking only token steps to expand oil exploration and drilling, while demand continues to increase around the world.  Demand will likely continue to rise unless the upward pressure of oil prices or some other factor causes the world to slide back into recession.

This article originally published on Examiner.com:


http://www.examiner.com/conservative-in-atlanta/why-gas-prices-are-going-up-1

Gas prices, Obamanomics, and the return of inflation

Drivers around Atlanta have undoubtedly noticed rising gas prices over the past few weeks.  Georgiagasprices.com reports that the average price of regular unleaded gasoline in Georgia is $3.428, just below the national average of $3.487.  Georgia’s average price has risen 42 cents per gallon in the past month and 78 cents in the past year.  This is an even sharper increase than the national average which is up 36 cents in the past month and 74 cents in the past year.

Part of the reason for the increase in gasoline prices is undoubtedly the unrest in the Middle East.  Whenever there is political instability in oil-producing regions of the world, which is fairly often, the price of oil tends to rise.  This, in turn, causes the price of gasoline and other items made from oil to rise.  The problem is compounded by the Obama Administration’s attempts to stop new domestic oil exploration and the EPA’s new carbon regulations. 

The rising price of oil may both mask and contribute to something more insidious as well:  a return of inflation.  Rampant inflation and resulting stagnant economic growth characterized the entire decade of the 1970s.  The inflation of the 1970s was caused by many of the same factors that are present in our economy today.  President Nixon ran up federal deficits and imposed wage and price controls.  Along with Federal Reserve Chairman Arthur Brooks, Nixon also increased the money supply sharply in an effort to end a recession and reduce unemployment.  Further, oil prices spiked twice in the 1970s as well; first, in 1973 with the Arab Oil Embargo and again in 1978 with the Iranian Revolution.

These factors are mirrored today in President Obama’s economic policies.  The federal deficits under Obama have led to an increase in the federal debt of $3.5 trillion.  Obama has also launched controls in some areas of the economy.  The president capped the pay of Wall St. CEOs of companies receiving federal bailouts.  He has also openly considered the idea of price controls as a remedy for health insurance costs that are rising even more sharply in the wake of the passage of Obamacare.  Federal Reserve Chairman Ben Bernanke is currently increasing the money supply by printing money under the guise of “quantitative easing.”

It is axiomatic in economics that as supply increases, price decreases.  Therefore, we can predict that as the supply of dollars increases through quantitative easing, increasing the money supply, that the price (or value) of those dollars will decrease.  Essentially this means that as the government prints more dollars, each individual dollar is worth less. 

Already, the specter of inflation is rearing its head in world markets.  One of the most notable areas of price increases is in world food markets, where food prices are at the highest point since the UN started tracking them in 1990.  Ironically, the rising cost of food in poor Arab countries may have been partly to blame for the outbreak of revolts against Middle Eastern dictators.  The unrest then further drives up oil prices, which leads to more inflation. 

President Obama with Fed Chairman Ben Bernanke

Bad weather and crop failures around the world have contributed to rising food costs, but economists believe that government mandates to use more food for ethanol production instead of consumption also play a major role in rising food costs.  Economics teaches that when something becomes more scarce, as when food is diverted to manufacture ethanol, it becomes more expensive. 

At the same time, ethanol remains uncompetitive in spite of government subsidies.  A plant in Soperton, Ga. that produced ethanol from wood recently shut down in spite of receiving over $150 million in government loan guarantees and grants, while a corn ethanol plant in Camilla, Ga. is in bankruptcy.  Ethanol subsidies and mandates are detrimental in that they add to the federal deficit while also driving up world food prices.

The Consumer Price Index (CPI), which measures inflation, has been relatively steady.  The CPI, however, does not typically include food and energy.  When food and energy prices are included, the CPI shows a sharp uptick in recent months. 

A further indication of the onset of inflation is the rising price of gold and silver.  Precious metals, gold in particular, are often considered a hedge against uncertainty and inflation.  After falling with the economy in 2008, the price of gold has rebounded sharply.  Since President Obama took office in 2009, the price of gold has risen from less than $900 per ounce to $1,467, an increase of more than 60%.  Silver has reacted even more dramatically, rising from just over $9 per ounce to $35, an increase of almost 300%.

Many economists do believe that monetary policy is the sole cause of inflation and that rising oil prices are a symptom of inflation, rather than being one of its causes.  In this case, rising oil prices are still bad news for the U.S. and world economies.  There is a strong link between spikes in oil prices and recessions.  The typical pattern is that oil prices increase dramatically, at least partially causing the recession.  As the economy slows, demand for oil decreases, which leads to a decline in the price.  This often allows the economy to rebound. 

This is the pattern followed in 2008 when record high gas prices were experienced just prior to the financial collapse.  After the onset of the recession, oil and gas prices dropped dramatically.  The Obama Administration’s regulatory and financial policies postponed the recovery and kept oil prices low until recently.  As the economy slowly recovers, oil prices would normally start to creep upward again.  The unrest in the Middle East provided more upward pressure as well.

Algerians riot over high food prices in 2009 (Flickr: 110109 Algeria slashes food prices amid riots)

In the current economic climate, the Federal Reserve is dramatically increasing the money supply.  At the same time, political unrest in the Middle East and Obama Administration policies at home are driving up the cost of oil and energy.  Problems with crops and diverting agricultural resources to ethanol production are increasing the cost of food as well.  If these trends continue, Georgians can expect gas prices to continue to rise, along with the prices of milk, bread, meat and other foods.  Eventually, if left unchecked, inflation will spread to other areas of the economy as well.

The cure for runaway inflation is almost as bad as the disease.  The rampant inflation of the 1970s was defeated only by the strategy of Ronald Reagan and Federal Reserve Chairman Paul Volcker to tighten the money supply (by increasing reserves of central banks and reducing the supply of money in the economy).  This strategy led directly to the recession of 1980, but ultimately inflation was defeated and the economy entered a strong recovery.  Other policies that President Obama is unlikely to embrace, such as tax cuts and reducing regulation, helped to ease the transition to tighter monetary policies.

http://www.examiner.com/conservative-in-atlanta/gas-prices-obamanomics-and-the-return-of-inflation#ixzz1G2Dv4hbc"> 

Coping With Record High Fuel Prices

Record fuel prices have Americans, as well as drivers around the world, feeling gas pains at the pump. High oil prices also drive up the cost of many other items due to production and delivery costs. High gas prices are certain to be a major issue in this year's elections.

Currently, the high price of oil reflects increasing demand around the world, particularly from developing countries such as India and China, as well as constraints on supply. Supply is limited by the high cost of exploration for new oil fields and bureaucratic limitations on opening new refineries.

While the high cost of gasoline is a problem for many, there are a few groups who benefit from high price of oil. Oil producing countries reap huge profits from expensive oil. Environmental groups seeking to reduce oil consumption have sought to artificially drive the price of oil even higher by increasing gas taxes. Alternative energy companies are an attractive investment when the price of oil is high.

For groups who seek to keep the price of oil high, there are several courses of action. First, they should work to keep demand high by discouraging conservation. Drivers should be encouraged to not to carpool or combine trips. Drivers should also be told not to slow down. Driving over 60 mph dramatically increases fuel consumption, especially in gas guzzling SUVs. The effective cost of gasoline increases by about twenty cents per gallon for each five miles per hour over 60 mph. For example, driving 70 mph means that you may as well pay an extra forty cents per gallon to fill up your tank. Not maintaining cars and keeping tires properly inflated also increases fuel consumption.

Keeping demand high is also accomplished by preventing the adoption of practical alternate sources of energy. Many sources of energy that are wildly popular hold little promise for a market the size of the United States.

Brazil has become almost totally energy independent through the use of ethanol-based fuels and many would like for the US to emulate their model. The problem is that Brazilian ethanol is sugar-based while only corn-based ethanol is widely available in the US. Corn ethanol is not as efficient as sugar ethanol. It actually takes more energy to produce and distribute corn ethanol than the ethanol itself provides. Additionally, it would take an area roughly the size of New England to provide enough ethanol to meet American needs. Finally, diverting corn to ethanol drives up food prices, which means that consumers would simply trade expensive gas for expensive food.

Solar and wind power are trendy sources alternate energy, but neither is ready to supplant oil as the primary engine of the world economy. Both require large capital investments in infrastructure and both are subject to changing weather. In the future, better means of storing large quantities of electricity and cheaper solar collectors and windmills may make solar and wind power more attractive, but presently they are not cost-effective or practical.

To keep gas prices high, consumers should also make certain that the supply of oil does not increase. The most effective way of doing this is by continuing to elect politicians who make it difficult to explore and drill for oil domestically in the United States. Current US policies prevent drilling in much of Alaska, the Gulf of Mexico, and federal lands in the continental US. These areas hold 635 trillion cubic feet of natural gas, enough to supply 60 million homes for 100 years, and 112 billion barrels of oil, enough to supply US needs for about 60 years.

Additionally, Congress and state governments are jointly responsible for high taxes on gasoline. Taxes on gasoline make up about 15% of the cost of a gallon, while oil company profits only account for about 4%. A reduction in gasoline taxes would provide relief at the gas pump for American drivers, and some presidential candidates are calling for a gas tax moratorium. Others are calling for increases in the gas tax, however, arguing that higher prices will decrease demand and spur conservation.

Government red tape also contributes to the high cost of gas. Environmental regulations make it a difficult and expensive proposition to build refineries to convert oil into gasoline. The last US refinery was built in the 1970s, although a few new refineries are under construction.

Environmental regulations also require that refineries manufacture expensive blends of gasoline in certain areas and in the summer to decrease pollution. Changing formulas is expensive and requires the refinery to stop production to make the changes. Making fewer types of gasoline would lower the cost and allow more gasoline to be produced.

Government regulations also slow the construction of nuclear power plants, the most practical form of alternate energy currently available. Advances in nuclear plant design allow nuclear power to be safe, clean and cheap. France currently supplies about 80% of its energy needs through nuclear power. Environmental groups and government regulations make it difficult to build nuclear plants in the US, however.

In short, there are two ways to lower the price of gasoline: by either increasing supply or decreasing demand. As long as people around the world continue to use large quantities of oil and limiting oil exploration and drilling, oil prices will continue to stay high.

How NOT to Lower the Price of Gas

Record fuel prices have Americans, as well as drivers around the world, feeling gas pains at the pump. High oil prices also drive up the cost of many other items due to production and delivery costs. High gas prices are certain to be a major issue in this year’s elections.

Currently, the high price of oil reflects increasing demand around the world, particularly from developing countries such as India and China, as well as constraints on supply. Supply is limited by the high cost of exploration for new oil fields and bureaucratic limitations on opening new refineries.

While the high cost of gasoline is a problem for many, there are a few groups who benefit from high price of oil. Oil producing countries reap huge profits from expensive oil. Environmental groups seeking to reduce oil consumption have sought to artificially drive the price of oil even higher by increasing gas taxes. Alternative energy companies are an attractive investment when the price of oil is high.

For groups who seek to keep the price of oil high, there are several courses of action. First, they should work to keep demand high by discouraging conservation. Drivers should be encouraged to not to carpool or combine trips. Drivers should also be told not to slow down. Driving over 60 mph dramatically increases fuel consumption, especially in gas guzzling SUVs. The effective cost of gasoline increases by about twenty cents per gallon for each five miles per hour over 60 mph. For example, driving 70 mph means that you may as well pay an extra forty cents per gallon to fill up your tank. Not maintaining cars and keeping tires properly inflated also increases fuel consumption.

Keeping demand high is also accomplished by preventing the adoption of practical alternate sources of energy. Many sources of energy that are wildly popular hold little promise for a market the size of the United States.

Brazil has become almost totally energy independent through the use of ethanol-based fuels and many would like for the US to emulate their model. The problem is that Brazilian ethanol is sugar-based while only corn-based ethanol is widely available in the US. Corn ethanol is not as efficient as sugar ethanol. It actually takes more energy to produce and distribute corn ethanol than the ethanol itself provides. Additionally, it would take an area roughly the size of New England to provide enough ethanol to meet American needs. Finally, diverting corn to ethanol drives up food prices, which means that consumers would simply trade expensive gas for expensive food.

Solar and wind power are trendy sources alternate energy, but neither is ready to supplant oil as the primary engine of the world economy. Both require large capital investments in infrastructure and both are subject to changing weather. In the future, better means of storing large quantities of electricity and cheaper solar collectors and windmills may make solar and wind power more attractive, but presently they are not cost-effective or practical.

To keep gas prices high, consumers should also make certain that the supply of oil does not increase. The most effective way of doing this is by continuing to elect politicians who make it difficult to explore and drill for oil domestically in the United States. Current US policies prevent drilling in much of Alaska, the Gulf of Mexico, and federal lands in the continental US. These areas hold 635 trillion cubic feet of natural gas, enough to supply 60 million homes for 100 years, and 112 billion barrels of oil, enough to supply US needs for about 60 years.

Additionally, Congress and state governments are jointly responsible for high taxes on gasoline. Taxes on gasoline make up about 15% of the cost of a gallon, while oil company profits only account for about 4%. A reduction in gasoline taxes would provide relief at the gas pump for American drivers, and some presidential candidates are calling for a gas tax moratorium. Others are calling for increases in the gas tax, however, arguing that higher prices will decrease demand and spur conservation.

Government red tape also contributes to the high cost of gas. Environmental regulations make it a difficult and expensive proposition to build refineries to convert oil into gasoline. The last US refinery was built in the 1970s, although a few new refineries are under construction.

Environmental regulations also require that refineries manufacture expensive blends of gasoline in certain areas and in the summer to decrease pollution. Changing formulas is expensive and requires the refinery to stop production to make the changes. Making fewer types of gasoline would lower the cost and allow more gasoline to be produced.

Government regulations also slow the construction of nuclear power plants, the most practical form of alternate energy currently available. Advances in nuclear plant design allow nuclear power to be safe, clean and cheap. France currently supplies about 80% of its energy needs through nuclear power. Environmental groups and government regulations make it difficult to build nuclear plants in the US, however.

In short, there are two ways to lower the price of gasoline: by either increasing supply or decreasing demand. As long as people around the world continue to use large quantities of oil and limiting oil exploration and drilling, oil prices will continue to stay high.