Oil Prices Collapse Below Zero

Oil futures are collapsing with prices going as low as $1 per barrel. The rout is due to a confluence of factors. Prices for futures contracts even dropped into negative territory this afternoon. Negative pricing means that some producers are paying buyers to take their oil rather than having to shut down wells.

Futures contracts are expiring on Tuesday. In a nutshell, the slowing economy and a glut of oil supplies are driving holders of those contracts to dump them at rock-bottom prices. The sell-off has driven prices lower than $1 per barrel for West Texas Intermediate (WTI) crude, a benchmark grade. The bargain price is equivalent to a loss of more than 90 percent of WTI’s value. CNBC notes that Monday’s trading is the worst day for WTI since the contract’s inception in 1983.

Oil prices had already taken a beating this year with a price war between Russia and Saudi Arabia. The Saudi maneuvering in March caused a sharp drop in prices that coincided with the onset of the Coronavirus pandemic in the US.

After the pandemic led to shelter-in-place orders for much of the country, oil prices dropped further. Decreased demand due to idle factories and fewer vehicles on the road contributed to a 60 percent drop in the price per barrel between February and mid-March. An internet meme recently asked, “Anyone else’s car getting three weeks to the gallon now?”

Demand is now being further dampened as oil storage facilities reach the limit of their capacity. Now filled to the brim with cheap oil, they don’t have room for more no matter how attractive the price.

As of this writing, WTI futures are trading at $0.78 per barrel while Brent crude is trading at $26.53. June futures for WTI appear much more stable at $22.31. Both the June WTI and Brent contracts are down slightly, but it is the May WTI futures that have completely collapsed.

The relative stability of the June contracts indicates that traders foresee an increase in demand over the next few weeks. As the country emerges from isolation, factories will restart and people will start driving to work again. As a result, oil will once again become a popular commodity.

In the short term, however, the collapse in oil prices does not bode well for oil-producing parts of the country. Even when businesses are reopened, oil workers may find that they do not have jobs to go back to.

Originally published on the resurgent

US Poised To Become Top Oil Producer

Thanks to the fracking and shale oil revolutions the United States is poised to become the world’s largest oil producer. The Energy Information Administration forecasts that US oil production will surpass 11 million barrels per day by 2019. The US is currently the third largest oil producer behind Russia (10.5 million barrels per day) and Saudi Arabia (10 million barrels per day).

“In 2019, EIA forecasts that the United States will average nearly 12 million barrels of crude oil production per day,” Linda Capuano, Administrator of the EIA, said in Bloomberg. “If the forecast holds, that would make the U.S. the world’s leading producer of crude.”

After declining for decades, US oil production began to surge in 2015. By November 2017, the US was producing more than 10 million barrels per day for the first time since 1970. As production rose, Congress repealed the 40-year-old ban on exporting US oil in 2015. Current forecasts show that the US could become a net exporter of oil and gas by 2022.

At the same time, it was producing more oil, the US was also using less. In 2017, US oil consumption fell for the first time in five years per Bloomberg. The decline was attributed to a number of factors that included more efficient vehicles, urban population growth than led to less driving, technology reducing the need for face-to-face meetings and an aging population that is leaving the workforce.

Nevertheless, there are a few speed bumps on the road to energy independence. Limited pipeline capacity from Texas’ Permian Basin means that production may start to slow in the area later this year. American refining capacity has also not increased with the surge in crude oil production. Oilprice.com reported that in June US refineries were running at more than 97 percent capacity.

Despite increasing oil production, the Energy Information Administration does not predict relief at the pumps for US drivers. The agency forecasts gas prices to average near their May 2018 peak for the next two years due to unrest in Venezuela, sanctions on Iran and OPEC production limits.

Published on The Resurgent

US exports oil and gas as demand starts to fall

In recent years, the United States has become much more self-sufficient when it comes to energy. A surprising decline in US petroleum consumption paired with increased production have combined to erase much of the American dependence on foreign oil imports. This week, the US reached another energy milestone when it was announced that America is now a net exporter of natural gas.

According to the Wall Street Journal, the US exported an average of 7.4 billion cubic feet of natural gas per day in November. Over the same period, only 7 billion cubic feet per day was imported. It has been almost 60 years since the US exported more natural gas than it imported.

The news on natural gas comes three years after US oil imports balanced for the first time since the 1950s. In 2013, US crude oil production was greater than the amount of oil imported for the first time in decades. 

The increase in US oil production is due largely to fracking and other new technologies that allow oil that was previously not recoverable to be harvested profitably, even when the price of oil is low. Shale oil production has risen even as prices fell. According to CNN, fracking now accounts for more than half of US oil production and has increased US output to a 43-year high. Since low oil prices have actually depressed production, US oil output can be expected to increase further as prices rise.

American oil production has increased to the point that US oil companies are now exporting oil for the first time in 40 years. In December 2015, Congress lifted a 1975 ban on exporting domestically produced oil. Six months later, oil exports averaged more than half a million barrels per day and US oil was being shipped around the world.

The shift from importing to exporting is also due to a decline in US oil consumption. After steadily increasing since the early 1980s, the 2008 financial crisis caused oil consumption to plunge. However, even after the recession was over, oil consumption remained low. In 2015, the White House Council of Economic Advisors pointed out that 2014 oil consumption was lower than 1997 in spite of an economy that was 50 percent larger. The decline was due primarily to a drop in vehicle miles traveled, but higher fuel economy was also a factor.

So far, the oil consumption “surprise” in the US has been greater than in other countries, but consumption is expected to fall around the world. Forbes points out that the discussion has moved from concerns about a “peak oil” decline in production to peak oil consumption. New technologies to conserve oil and alternative energy sources are pointing to the possibility that worldwide oil consumption may soon start to decline.

The decline in oil prices over the past few years is a perfect illustration of the laws of economics in action. As oil production, the supply side of oil, increases, the price of oil, the demand side, decreases. Additionally, decreases in demand due to less driving and more fuel efficient cars also contribute to falling prices.

Ultimately the markets corrected and solved the problem of high oil and gasoline prices without government interference. In the future, they will also solve the problem of what to do when oil supplies eventually become scarce or inefficient. Tim Worstall noted in Forbes, “As Sheikh Yamani pointed out, the stone age did not end because of a shortage of stones. And it looks like the oil age will not end for a shortage of oil, rather simply because we’re finding better ways to get our energy.”

Originally published on The Resurgent

New oil find in Texas should keep prices low

The U.S. Geological Survey announced this week that it had discovered the what may be the largest untapped supply of oil ever found in America. The discovery sits in the Permian Basin of West Texas near Midland, an already booming oil town that was the childhood home of President George W. Bush.

The find comes amid a two-year oil price slump that has caused pains among Texas companies as well as foreign oil producers like Saudi Arabia, Venezuela and Russia. Many oil companies in Texas have already filed bankruptcy and many more hover on the brink.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz of the USGS. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”

The new find and the oil slump are both made possible by new technology that allows oil to be harvested that was untouchable in the past. Hydraulic fracturing (fracking) and the ability to drill for shale oil have vastly increased the amount of the world’s recoverable oil reserves.

The New York Times reports that US domestic oil production has almost doubled in the past few years, largely due to these new technologies. As US production of oil has increased, the need for foreign imports has fallen. Foreign oil companies have struggled to find new markets and prices have fallen as a result.

Over the past few months, oil prices have recovered from less than $20 per barrel to the current $40-50 range. Many wells are not profitable at current prices and have shut down. Likewise, new exploration and projects have lagged because they are not cost effective without a higher price for oil.

Most analysts have predicted that oil prices will take several years to recover to the $60 range where many more wells and projects would be profitable. The likelihood of oil returning to $100 per barrel prices that were frequently seen from 2008 through 2014 seems remote.

The new oil discovery also serves as a reminder of how rapidly things can change. Alarmists have been predicting for years that the world has reached the point of “peak oil,” the point where oil production has reached a maximum and will begin a decline due to diminishing reserves. Far from it.

In the past few years, US and world oil reserves have increased markedly due to new discoveries and new technologies. At the same time, the world is using its oil more efficiently thanks to technological advances in engines and aerodynamics. Even with more people and countries using oil, the world’s oil supplies should be abundant for many years to come. 

Originally published on The Resurgent

America "racing toward judgment" as Shemitah draws to close

Jonathan Cahn / Hope of the World

As the 2014-2015 Shemitah year draws to a close, the world is once again falling into financial turmoil. The US stock market moved into correction territory last week and, in early trading this week, the Dow crashed more than 1,000 points before recovering to a mere 588 point loss. The current volatility in the market is not the only bad news of the current Shemitah, however. The Shemitah, which began last September, was ushered in with several ”shakings,” in the words of Rabbi Jonathan Cahn, who discovered the Shemitah pattern and wrote the book, “The Mystery of the Shemitah.”

"America is racing toward judgment," says Rabbi Jonathan Cahn in a video posted on You Tube. "Not one but multiple factors are converging."

The Shemitah began on September 24, 2014 with another stock market correction. CNN Money noted that the “September slump” did not last for the entire month of September. Instead, “starting on Monday, September 22, investors hit the pause button and kept hitting it for much of the rest of the month.” This coincided almost perfectly with the onset of the Shemitah.

Following on the heels of the stock market crash was a shaking of a different sort. On September 30, 2014, the CDC confirmed the first case of Ebola in the United States. Over the next few weeks, several other cases were identified around the country, prompting a state of near panic in many urban areas. The panic lasted throughout the month of October as more cases were diagnosed and the first patient, a Liberian immigrant, died. Spurring more fears, a number of medical professionals who had treated patients in the original outbreak in Africa flouted quarantines and traveled around New York and the country.

The stock market experienced a rough October as well. Both the S&P 500 and the Dow Jones Industrial Average experienced sharp downturns in mid-October. Although both indexes regained their losses over the next few weeks, Shemitahs have historically been marked by volatility in the markets and the current Shemitah is no exception.

 In early July, the Chinese stock market crashed after reaching a record high on June 12. On July 4, the Chinese government suspended the sale of stocks in an attempt to stave off losses. In spite of the Chinese government’s attempts to manipulate the market, the International Business Times reports that Chinese stocks lost more than eight percent of their value on what has come to be known as “China’s Black Monday.” Quartz notes that stock markets around Asia closed with sharp declines. Further, Zero Hedge listed 23 countries around the world where stock markets are currently crashing. Thomas DeMark, founder and CEO of DeMark Analytics, told CNBC that the Chinese stock market crash closely resembles the US crash of 1929 in which the stock market lost 50 percent of its value and the contagion spread around the world.

Other factors that may be contributing to the world’s economic woes are the collapse in oil prices, the Greek debt crisis and the Federal Reserve’s monetary policy. Holman Jenkins wrote in the Wall St. Journal that the Greek crisis has largely been resolved without Greece having to address its core problem of deficit spending. Reform of Europe’s welfare state has been kicked down the road and Europe’s debts will continue to mount.

Martin Feldstein, President Reagan’s chairman of the Council of Economic Advisors, wrote in the Wall St. Journal that some of the US market’s difficulty can be attributed to the Fed’s policy of low interest rates that dates back two seven-year Shemitah cycles to the September 11 attacks and the resulting stock market crash in 2001 on the last day of the Shemitah. The Fed kept interest rates low throughout the remainder of the Bush Administration which fed the real estate bubble that burst in 2008 on the last day of that Shemitah year. Feldstein notes that after the failure of President Obama’s 2009 stimulus, Fed Chairman Ben Bernanke promised to hold rates near zero for the long term. Low interest rates have also pushed investors into the stock market due to low yields on other investments. Recent articles have pointed out that with interest rates hovering near zero, the Fed has little room left to combat a new economic crisis and may even take rates into negative territory.

The confluence of bad economic news into a perfect storm scenario is compounded by the rejection of Judeo-Christian values and morals. The 2015 Shemitah has been hallmarked by a turning away from God. The most notable example of this is the Supreme Court decision to overturn the will of the people and thousands of years of tradition to redefine marriage. By the time the Supreme Court ruled on the Obergefell case, same sex marriage had become the law in a majority of the United States. In almost every state, the redefinition of marriage was imposed by a small clique of judges and not the voters of the state.

Also in the summer of 2015, a series of undercover Planned Parenthood videos unveiled the dark world of the abortion provider. The videos revealed the callous disregard for life among Planned Parenthood employees and the stark truth that the sale of body parts from aborted babies is a vital part of the organization’s business model. In one video, a former employee of a stem cell harvesting company accused Planned Parenthood, which receives federal government funding, of harvesting the brain of a baby whose heart was still beating. Contrary to the public face of abortion in which proponents deny the humanity of unborn babies by using the euphemism “fetus,” Planned Parenthood’s employees freely refer to “babies” on the videos as they joke about the killings. Even during the murder trial of abortion doctor Kermit Gosnell the horror of abortion has never been so clearly exhibited.

Symbolic of America’s rejection of God, a statue of Baphomet, a satanic deity, was unveiled in Detroit in July. The nine-foot tall statue was unveiled at what is purported to the “largest public satanic ceremony in history” according to Time.

A landmark event of the Shemitah that touches on both morality and policy is President Obama’s tentative nuclear deal with Iran. The deal marks not only a danger for the United States, since it fails to prevent Iran from developing nuclear weapons, but is a historic break between Israel and the United States. Since its birth in 1948, Israel and the United States have maintained close relations. The US was among the first countries to recognize the nation of Israel and the US provided valuable support to Israel during many of its wars for survival. Most notably, in the Yom Kippur War of 1973, it was resupply by the United States that helped Israel to survive a coordinated attack by its Arab neighbors.

The Iran deal changes the relationship between the two countries. Barack Obama has been more hostile to Israel than any other president. From the beginning of his administration, Obama pushed for a return to Israel’s almost indefensible pre-1967 borders. The deal with Iran will place the United States at odds with Israel as it provides financial support to the Iranians. The removal of sanctions and lack of inspections will make it easier for Iran to build nuclear weapons with which to threaten both Israel and the United States.

The 2015 Shemitah has been a momentous period. With three weeks left in the current Shemitah, which ends on September 13, there is the possibility of even more volatility and chaos. Secular analysts are predicting that the current financial unrest will continue for several months until markets find an equilibrium.

Rabbi Cahn believes that it is not too late to avert judgement. “I am led to call for a period of prayer, repentance and intercession for America, to end on Sept. 23, Yom Kippur," he says. "It is crucial the people of God come before Him now on the foundation of 2 Chronicles 7:14: 'If My people who are called by My name will humble themselves and pray and seek My face and turn from their evil ways, I will hear from heaven, I will forgive their sin, and I will heal their land.”

Barack Obama as a benevolent dictator

The White House quietly announced on Wednesday that members of Congress can still their federal health insurance subsidies in spite of a clause in the Affordable Care Act that specifically says otherwise. The law requires members of Congress to purchase unsubsidized insurance on Obamacare’s new exchanges “notwithstanding any other provision of law.” Obama made a “personally request” that his Office of Personnel Management continue to pay the subsidies to congressional members and staffers with salaries as high as $175,000 according to the Wall St. Journal. In response, the OPM decided to interpret the clause completely opposite from the way it has been traditionally understood.

According to NPR, the prospect that Congress would have to pay the same insurance rates as the rest of the country led to a “bipartisan uproar” and fears of a “brain drain” as staffers retired to keep their benefits. When rumors of a congressional exemption became public last April, a Rasmussen poll indicated that 95 percent of Americans believed that Congress should face the same requirements as all other Americans. It would have been a political nightmare for Democrats in Congress to enact legislation exempting themselves from an unpopular law just prior to a hotly contested election. Fortunately for Congress, President Obama stepped in to save the day.

“No one so far who's really looked at this sees a legal way for them to do this,” Ed Haislmaier, a senior research fellow at the Heritage Foundation told NPR. Haislmaier is one of the authors of a paper detailing the congressional health insurance problem and argues that only Congress could pass legislation to deal with it.

“Believe me, the idea of doing things on my own is very tempting,” President Obama said in July 2011. He continued, “But that's not how -- that's not how our system works…. That’s not how our Constitution is written.” The evidence shows that Barack Obama has succumbed to this temptation, not once, but many times.

The move to exempt Congress from Obamacare comes only a few weeks after President Obama also unilaterally delayed the implementation of the Affordable Care Act’s employer mandate. On July 3, the White House announced the president’s decision to not require that businesses provide their employees with health insurance until 2015 according to The Hill. The law does not give the president the authority to delay implementation of the mandate, one of the central tenets of his signature piece of legislation.

These decisions were not the first time that the Obama Administration had violated the requirements of the Affordable Care Act. Since the law’s passage in 2010, the Department of Health and Human Services issued more than 1,400 waivers that allowed businesses to not meet the law’s requirements according to the Daily Caller. The problem is that these waivers were not authorized by the Affordable Care Act. Instead, President Obama’s Health and Human Services department issued new rules and regulations that gave itself the power to waive the law. Congress did grant waiver authority to HHS in some aspects of the law, but not the provision that required businesses to increase the amount of health insurance provided to employees.

The Obama Administration’s disrespect for the rule of law is not limited to Obamacare. Less than four months into his presidency, in April 2009, President Obama unilaterally ordered the bailout of General Motors and Chrysler using TARP funds even though TARP was specifically limited to financial institutions by Congress. When the auto giants went bankrupt anyway, President Obama and his advisors ignored established bankruptcy law and placed politically favored unions ahead secured creditors. National Affairs details how the president browbeat investors, including pension funds for state retirees, to write off their losses and then put the auto companies under the control of his “car czar,” Steve Rattner.

It was also in the auto bankruptcies that the first hints of the Obama Administration’s targeting of political opponents became public. In the summer of 2009, rumors flew that the Administration’s car czar was targeting car dealerships owned by Republicans for closure while sparing the majority of Democratic dealerships. In September 2009, Factcheck.org denied the rumors, but with the recent revelations of the IRS targeting of conservative groups, two congressmen are calling for a new investigation of the Treasury Department’s role in closing the dealerships.

There are many other instances of President Obama’s executive overreach as well. In May 2010, after the Deepwater Horizon oil spill, Obama, again unilaterally, ordered a six month moratorium on deepwater oil drilling in the Gulf of Mexico. When a judge struck down the ban on drilling, Obama’s Interior Department ordered an almost identical ban the next day, an action that the judge to hold the Obama Administration in contempt of court. The contempt ruling was overturned in 2012 by a panel of judges though the order striking down the ban was upheld.

In April 2011, President Obama’s National Labor Relations Board filed a complaint against Boeing alleging that the company was engaged in illegal retaliation against unions by opening a new plant in the right-to-work state of South Carolina. Bloomberg notes that the complaint was suddenly dropped in December after Boeing reached an agreement with its machinist union.

In December 2010, President Obama’s FCC imposed “net neutrality” rules on internet companies by issuing a regulatory rule. According to CNET, the FCC had previously tried to impose net neutrality in 2008, but a three-judge panel ruled that Congress had not given the FCC the authority to regulate the network management policies of internet providers. When Congress failed to pass a net neutrality law, Obama’s FCC chairman imposed the rules anyway. A case challenging the FCC rules is currently before the Supreme Court.

In March 2011, even though President Obama had criticized President Bush’s decision to invade Iraq, Obama decided to intervene militarily in the Libyan civil war. Unlike President Bush, who sought approval from Congress as required by the Constitution and the War Powers Act, Obama gave the order to go to war in Libya unilaterally. Obama did not seek congressional approval for the war and denied that the War Powers Act applied.

In January 2012, Obama made three recess appointments to the National Labor Relations Board and one to the new federal Consumer Protection Bureau. While the Constitution does allow presidents to make recess appointments under certain circumstances, it requires Congress to actually be in recess when the appointments are made. Three federal courts ruled that Obama’s appointments were unconstitutional, but the NLRB simply ignored the rulings. The case was headed for the Supreme Court when Senate Democrats and Republicans reached a deal on the use of the filibuster. The deal may affect whether the Supreme Court hears the case.

In June 2012, as the election between Mitt Romney and Obama heated up, the president mobilized Hispanic support by unilaterally deciding not to enforce portions of current immigration law. Obama announced as part of his “We can’t wait” [for Congress to pass a law] campaign that he would stop deportation proceedings against young immigrants who had entered the country illegally. The decision derailed congressional work on the DREAM Act and was in direct violation of U.S. immigration law.

After the Newtown massacre, Obama bypassed Congress and issued 23 Executive Orders designed to further his gun control policies. According to Reuters, Obama said, “Where they [Congress] won’t act, I will.” Obama stopped short of ordering an assault weapons ban though he urged Congress to pass one.

Earlier in his presidency, Obama had asked Congress to pass cap-and-trade legislation to regulate carbon. Congress declined to pass the bill, even when Democrats controlled both houses, so President Obama is once again using executive agencies to legislate. The Washington Post reported in June 2013 that the EPA will use the Clean Air Act to impose carbon regulation on new coal and gas power plants.

To some extent, Obama’s executive actions are the result of an abdication by Congress. Timothy Lee pointed out in Forbes that the Affordable Care Act and the Dodd-Frank financial reform law both require thousands of pages of regulations that are written and enforced by unelected executive branch bureaucrats. Much of Obama’s executive overreach can be blamed on no one but Obama himself however.

Other aspects of Obama’s executive abuse are less benevolent. In May 2013, the IRS admitted to targeting conservative groups during the 2012 elections. Congressional investigations subsequently revealed that the IRS had been illegally working against Obama’s political opponents as early as August 2010 and possibly as early as 2008. Last week, the Federal Election Commission was implicated in the scandal as emails surfaced showing illegal collusion between FEC and the IRS officials investigating conservative groups according to CNN. On August 7, 2013, the Wall St. Journal reported that Democratic commissioners on the Securities and Exchange Commission tried to implement new rules on political contributions by public companies that would have also had the effect of making it more difficult for conservative groups to raise funds and speak out against Obama.

The sum total of Obama’s actions indicates that he may consider himself a benevolent dictator, an authoritarian ruler who acts for the benefit of the people rather than for himself. His repression of the free speech rights of his opponents is proof that a benevolent dictator is a dictator nonetheless. Rather than favoring the nation as a whole, Obama’s policies benefit favored demographic groups and political allies. President Obama’s “determined disregard” for the laws of the United States may be applauded by some who agree with his goals, but his actions set a disturbing precedent and raise grave questions about the future of the United States.

Originally published on Atlanta Conservative Examiner

IRS and press harassment similar to other Obama scandals

The Obama Administration has become embroiled in three simultaneous scandals over the past few weeks. Much speculation has been made about what President Obama knew and when he knew it. Regardless of whether President Obama gave the order or had personal knowledge of spying on reporters or the harassment of conservative groups, the charges are well within the character of an administration well known for executive overreach and disregard for the law. The Obama administration has been hallmarked by disregard for the rule of law since its early days.

In the spring of 2009, the Obama Administration ignored established bankruptcy law to cast aside secured creditors of Chrysler and GM in favor of unsecured but better connected creditors such as the United Auto Workers pension according to National Affairs. Creditors were denied their right to have input on the company reorganizations through a sub rosa plan in which the assets of “old” Chrysler and GM were “sold” to “new” Chrysler and GM, bypassing creditors in the process. When some investors stood up for their rights, President Obama attacked them as “speculators” in a speech at Chrysler.

The closing of dealerships in the aftermath of the auto bankruptcies fueled speculation and rumors that the Obama Administration was using the auto bankruptcies to target political opponents. The Washington Examiner pointed out at the time that dealers on the list of closures had donated millions to Republicans, but only $200 to Obama. The list of closures seems to have been dictated by Steve Rattner, President Obama’s “car czar.”

On the heels of the auto bankruptcies came “Fast and Furious.” In the spring and summer of 2009, Democrats from Secretary of State Clinton to Sen. Diane Feinstein (D-Calif.) claimed that 90 percent of the guns used in Mexican crimes came from the United States. While claim is not accurate, thousands of the guns that actually did get to Mexico from the United States apparently were allowed across the border by the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE). Whistleblowers later told Congress that they had orders to let smugglers take illegally purchased guns across the border into Mexico. As Examiner reported in 2011, several of the illegal weapons were found at the scene of the murder of Border Patrol Agent Brian Terry on December 15, 2010. The guns turned up at numerous other crime scenes in Mexico as well. In 2011, another American officer, Jaime Zapata, was murdered in Mexico with a gun that had been tracked by the ATF according to CBS News. The Mexican government was not pleased with the revelations that the Obama Administration allowed thousands of illegal guns into their country.

After the BP oil spill in 2010, President Obama issued a unilateral moratorium on deepwater drilling. When a court ruled that the drill ban was unconstitutional, the Department of Interior still refused to issue new drilling permits. This led a federal judge to hold the Obama Administration in contempt of court for its “determined disregard” for its continued drilling restrictions.

In the spring of 2011, after dithering for months, President Obama approved U.S. intervention in the Libyan civil war. Obama notified Congress within 48 hours as required by the War Powers Act, but neglected to seek congressional approval within 60 days. Obama also failed to end American involvement within 30 days of the deadline for seeking congressional approval as required. The N.Y. Times called the Libya intervention “illegal” and said that it “set a troubling precedent that could allow future administrations to wage war at their convenience — free of legislative checks and balances.”

The matter is all the more stark because President Obama had said in 2007 that “The president does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.” After Libya, Politifact rated the statement a “full [flip] flop.”

Also in 2011, the Obama Administration’s loan to Solyndra, a solar panel manufacturer, went sour. While most analyses of the Solyndra scandal focus on the poor judgment involved in making a loan that ultimately cost taxpayers $535 million according to Yahoo, laws might have been broken here as well. According to the Christian Science Monitor, it may have been illegal for the Obama Administration to restructure Solyndra’s loan to put private creditors ahead of taxpayers.

In 2012, the Supreme Court affirmed the power of the government to compel its citizens to purchase a private product, keeping Obamacare’s individual mandate intact. The legal status of other parts of Obamacare remains questionable. The mandate that all insurance policies cover contraceptive and abortifacient drugs has been successfully challenged in court as a violation of the freedom of religion.

Since 2010, the Department of Health and Human Services has issued more than 1,200 Obamacare waivers to companies according to The Hill. As noted in Examiner, the language of the Affordable Care Act did not permit such waivers. In 2013, Politico reported that members of Congress were secretly negotiating an exemption from Obamacare’s requirements under concerns that staffers would face sharp increases in premiums when Obamacare goes into effect.

More recently, faced with a $1.5 billion shortfall in funds to implement Obamacare, HHS Secretary Kathleen Sebelius resorted to soliciting donations from insurance companies according to the Washington Post. As Sen. Lamar Alexander (R-Tenn.) points out in the Wall St. Journal, the Constitution and other laws do not permit the government to spend money that has not been appropriated by Congress. Soliciting donations from companies that Sebelius regulates is likely a conflict of interest as well.

Earlier this year, President Obama received a strong rebuke from a federal court for several appointments that he had made to the National Labor Relations Board. The president styled the appointments as recess appointments even though Congress was still in session. The decision, described on Examiner, stated that Congress, not the president, decided when it was in session and then went a step further, stating that recess appointments could only be used to fill vacancies that arise during a recess. A second appeals court issued a similar ruling in May after the NLRB ignored the first court’s ruling and continued to issue decisions on cases heard by the invalid members.

President Obama also has a record of issuing executive decrees when Congress fails to act. In December 2010, the EPA announced plans to regulate carbon after Congress failed to pass cap-and-trade legislation. At the same time, the FCC unilaterally issued “net neutrality” rules in spite of a court ruling stating that the agency did not have the power to regulate the internet. Before even asking Congress to enact new gun control laws, the president signed 23 executive orders relating to guns.

The new scandals, lying to public about Benghazi, spying on reporters to ferret out leakers within the administration, and using federal enforcement agencies to quash political opposition, are merely the latest in a long line of abuses of power by President Obama and his deputies. The common threads among all of the Obama scandals are abuse of executive power disregard of the law for political gain. The new trio of scandals is no different.

A form of this article was originally published as Atlanta Conservative Examiner.

Obama’s legal problems

By now most Americans are familiar with the legal challenges to President Obama’s signature legislation, the Affordable Care Act. In March, the Supreme Court heard three days of oral arguments on the constitutionality of the various aspects of the law including the government’s mandate that all Americans must buy health insurance. Although the Court has not yet ruled on the case, pointed questions from the justices lead many observers to believe that at least part of the law will be struck down.
If the Supreme Court does rule that the Affordable Care Act is unconstitutional, it will not be the first time that the Obama Administration has been chastised by the judicial branch. Last year, President Obama’s Interior Department was held in contempt for violating a federal judge’s ruling striking down the moratorium on offshore oil drilling imposed after the BP oil spill in 2010. After the judge ordered the moratorium lifted, the Interior Department continued to refuse to issue drilling permits for months. Interior Secretary Ken Salazar also imposed onerous safety rules on drilling that the judge ruled were in violation of federal law.
The Obamacare case is not the first time that the Obama Administration has found itself in legal trouble. In February 2011, a federal judge held the administration in contempt for continuing its deepwater oil drilling moratorium after the policy was struck down. According to Bloomberg, the government acted with “defiance” and “determined disregard” in refusing to issue drilling permits even after a court struck down Obama’s ban on offshore drilling.
President Obama’s EPA has suffered several defeats recently. In a March 2012 Supreme Court ruling, an Idaho couple was building a house when the EPA ordered them to restore the wetlands on their property and threatened fines of $75,000 per day according to the Washington Post. There was no noticeable water on the property. Lower courts ruled that EPA compliance orders were not subject to judicial review, but the Supreme Court ruled unanimously that the couple could challenge the EPA’s order in court.
Another EPA case involves the agency’s refusal to approve a Texas plan for implementing air quality standards. According to Businessweek, a U.S. Court of Appeals ruled that the EPA had “no legal basis” to reject the Texas standard after it failed to identify where federal standards were not met and missed a deadline to rule on the plan by three years according to the Austin Statesman.
The EPA has recently lost another case to Texas as well. In December 2011, the U.S. Court of Appeals issued a stay on an EPA rule regarding cross-state air pollution that was set to take effect in January. The ruling means that the EPA regulations will not take effect until the court makes a decision on the case. Arguments in the case were heard in April, but the court has not issued a decision yet. Georgia is also a party to the cross-state lawsuit.
In more litigation relating to the EPA, the Southeastern Legal Foundation, a Marietta, Ga. based group, is challenging the Obama EPA’s decision to unilaterally amend the Clean Air Act to allow it to regulate carbon. On April 2, Shannon Goessling, the executive director of the Southeastern Legal Foundation, was interviewed about the lawsuit on the Michael Medved Show. (Listen in Atlanta on AM-920. The interview is archived at MichaelMedved.com and the SLF website.) Goessling said that 15 Georgia businesses and business associations as well 7 members of Congress from Georgia are among the parties to the lawsuit.
According to Goessling and SLF court filings, six million businesses would potentially be subject to EPA carbon rules under the new regulations. The expansion of EPA regulatory power would have a devastating effect on the economy, dramatically increasing the cost of energy and costing millions of jobs. The result of the regulation would be to reduce the world temperature by 0.00071 degrees Celsius, “70 times smaller than the smallest change that can be detected” according to the SLF brief. The annual emissions reduced by the regulation would be replaced by China in 13 days.
The question is whether the EPA had the right to regulate carbon at all. Congress failed to pass cap-and-trade carbon regulation in 2010. Since Congress did not pass the legislation, President Obama’s EPA chief, Lisa Jackson, decided to bypass Congress and regulate carbon as a pollutant in the wake of a Supreme Court ruling, Massachusetts v. EPA, which directed the agency to review whether it could legally regulate carbon. According to the Atlanta Business Chronicle, EPA regulations will take effect on power plants this month and refineries in November 2012. If the regulations are allowed to take effect, energy costs are poised to skyrocket. The case was recently heard by a federal appeals court which has not yet ruled.
The rash of cases against the EPA for unconstitutional and illegal overreach reflects the attitude of EPA Regional Administrator Al Armendariz who recently surfaced in a video favorably comparing EPA enforcement actions to Roman crucifixions. Armendariz implied that he felt the need to make an example of a few companies in order to intimidate the rest. He resigned after the video went public.
Other members of the Obama Administration have their own personal legal problems. Attorney General Eric Holder may be held in contempt of Congress for his role in the cover-up of the Fast and Furious scandal according to ABC News. Holder’s Justice Department has not complied with congressional requests for many documents detailing the failed gun sting. In Operation Fast and Furious, federal agents allowed straw purchasers to smuggle thousands of guns purchased in the U.S. into Mexico. The guns were used in several murders, including that of U.S. Border Patrol agent Brian Terry in December 2010.
Finally, the Obama Administration was the plaintiff in a case against Arizona’s controversial immigration law. The administration sued to block implementation of the law on the grounds that only the federal government has the right to set immigration policy. Nevertheless, according to Yahoo, the Supreme Court appeared ready to uphold at least part of the Arizona law. At times even liberal judges were critical of the government’s case.
President Obama’s legal problems reflect a disregard for the letter of the law and an arrogant attitude that the government always knows best. Ironically, the disregard for constitutional principles and the rule of law may sink his signature legislative accomplishment and be the ultimate undoing of his presidency.

Read the rest of this article on Examiner.com
http://www.examiner.com/article/obama-s-legal-troubles?cid=db_articles

Delta refinery may mean competitive advantage

In a move that is the first of its kind for an airline, Atlanta-based Delta Air Lines is buying its own refinery in an effort to control fuel costs. Along with labor and aircraft, jet fuel is one the highest cost factors for airlines. High fuel costs over the past few months have put pressure on airline profits and led to reduced schedules and higher fares.

The refinery purchased by Delta is outside Philadelphia and was previously owned by Phillips 66 according to the Atlanta Business Chronicle. A subsidiary of Delta, Monroe Energy LLC, will pay $150 million for the plant and then spend another $100 million for retooling to maximize production of jet fuel. Delta expects production to start in the third quarter of 2012 and forecasts a savings of $100 million this year and $300 million per year thereafter. This means that the investment could pay for itself in less than two years. According to the Wall St. Journal, the deal will supply 80 percent of Delta’s fuel needs in the United States. The refinery had been slated to close if no buyer was found.

The purchase of the refinery is no panacea for fuel costs. A major factor in the cost of fuel is the cost of crude oil. This price is largely fixed by OPEC and varies with changes in demand, interruptions in supply, and international tensions. Delta will still have to purchase oil at market prices to refine. The Wall St. Journal notes that Delta has contracted with BP to provide oil for the refinery for three years.

The company may also find problems with distribution of the jet fuel once it is produced since Delta needs fuel at airports around the country. If the fuel is produced in Philadelphia, it must be transported to where the airplanes are, notably to Delta’s hubs in Atlanta, New York, Cincinnati, Minneapolis, Detroit, Memphis and Salt Lake City.

A partial solution to this problem lies in Delta’s deal with BP. When oil is refined, it produces a variety of fuels, not one specific type. Even though Delta is primarily interested in jet fuel, its refinery will also produce other fuels such as gasoline. The Wall St. Journal notes that Delta has agreed to trade these by-products to BP in exchange for jet fuel at other locations. This eliminates the need to transport at least a portion of the jet fuel across the country.

The purchase makes sense from a standpoint of controlling costs, but there are risks as well. Delta has no experience in the oil industry. Running a refinery is radically different from running an airline. However, as noted in the Wall St. Journal, Delta spent $11.7 billion on fuel in 2011. The $150 million purchase represents less than two percent of that total. Given the estimated savings of $300 million per year, the risk is an attractive one.

Cheaper jet fuel may change the economics of many routes that Delta flies. Smaller destinations may become more profitable under the new cost structure. Destinations that saw flights reduced or eliminated as fuel prices rose may see a return of Delta service. Delta’s competitive advantage in fuel costs may translate to lower fares on some routes.

If the move works, other airlines are likely to follow suit in purchasing their own refineries. Delta might even consider additional purchases in other parts of the world given the airline’s role as a major international carrier. Fuel costs are even more expensive in other countries due to higher taxes and labor costs so the potential savings could be even more attractive.

An additional factor for consumers is the question of the impact of the conversion of the Philadelphia refinery on gasoline prices. In the past few months, refinery closures have caused increases in the price of gasoline, sending the price at the pump near its 2008 highs. As the Philadelphia facility retools to produce more jet fuel, it will necessarily produce less gasoline. This may lead to an increase in the price of gas for drivers.

 

Read this article on Examiner.com:

http://www.examiner.com/article/refinery-may-give-delta-air-lines-competitve-advantage

Did Obama issue order allowing “dictatorial” powers?

Over the weekend, a fury erupted over President Obama’s release of an Executive Order that, according to many pundits, gives the president the power to take control of the national economy. According to normally level-headed commentator Dick Morris, who wrote a column titled “Obama assumes dictatorial powers,” the order gives “him vast powers to control every aspect of the U.S. economy in the event of war or even during a peacetime ‘emergency.’”

The pundits usually link the Executive Order to the National Defense Authorization Act, which many claim gives the president the power to indefinitely detain American citizens on charges of terrorism. As this column pointed out, the NDAA actually contains a specific exemption for U.S. citizens and legal aliens. Even if the charges about the law were true, it would be a gross violation of the Constitution and the right to habeas corpus.

The claims about the new Executive Order are similarly overblown. The preamble to the Executive Order cites the Defense Production Act of 1950. Harry Truman, not Barack Obama, was president in 1950. Most Americans would agree that Harry Truman did not assume dictatorial powers.

Sourcewatch.org notes that the Defense Production Act was enacted to respond to economic difficulties caused by the Korean and Cold Wars and “authorized Governmental activities in various areas, including requisition of property for national defense, expansion of productive capacity and supply, wage and price stabilization, settlement of labor disputes, control of consumer and real estate credit, and establishment of contract priorities and materials allocation designed to aid the national defense.” The Act has been updated, amended and reauthorized several times since 1950. It was modernized and limited in the 1980s. President Bush updated in again in October 2001.

Critics of President Obama’s order point to the reference to U.S. “national defense equipment in peacetime and in times of national emergency” as an unprecedented statement that means that the president is claiming the authority to nationalize American industry in peacetime as well as war. However, Hotair.com’s Ed Morrissey notes that the language about “peacetime” matches an Executive Order issued by President Clinton in 1994. President Clinton was not accused of fomenting a dictatorship either.

Morrissey further notes that much of President Obama’s Executive Order matches President Clinton’s 1994 order in many other respects as well. He points out that the main differences in the Obama and Clinton orders is with the reorganization of the president’s cabinet. In 1994, the Department of Homeland Security did not exist.

President Obama’s order also includes the phrase “under both emergency and non-emergency conditions” in section 201 (b). When taken in context, however, the section instructs agency heads “to prioritize and allocate resources and establish standards and procedures” that will “be used to promote the national defense.” Additionally, Clinton’s order did not limit applicability to emergency conditions.

Dick Morris bases much of his criticism on a Huffington Post article by Edwin Black. Black’s theory is that the order is a sign that President Obama is finally waking up to the probability of a Middle Eastern war involving Iran that would result in an interruption of oil supplies. Black claims that the order lays the groundwork for rationing of energy supplies. Black notes that the order mentions the “military use of civil transportation” and “stockpiles managed by the Department of Defense,” but neglects to mention that these are not new things. The DOD has contracted with civilian airlines to transport soldiers at least as far back as the Vietnam War when Braniff had military contracts to transport soldiers and cargo to the war zone. Likewise, the Strategic Petroleum Reserve, a national stockpile of oil, dates back to 1978.

In any case, Black fails to point to any “smoking gun” in the order that indicates that the government is planning to enact rationing. The article amounts to nothing more than speculation and fails to take into account the long history of similar executive orders. In fact, executive orders dealing with defense resources date back to a 1939 order issued by President Roosevelt. The policy has been updated by almost every president since then.

Nothing in the entire document gives the government the right to nationalize or assume control over the private economy. There are references to loan guarantees, subsidies, and purchases, but not the outright commandeering of private assets. The claims that President Obama intends to use his Executive Order as a basis for seizing control of the U.S. economy or launching an American dictatorship are baseless. The only way such a conclusion can be reached is by deliberately taking snippets of the order out of context.

There are many words that might be used to describe Barack Obama (arrogant, misguided, naïve, incompetent), but there is no evidence to support the notion that the president is an evil man bent on turning the United States into a dictatorship. Conservatives do real damage to their cause when they ignore Obama’s very real and abysmal record on the economy and foreign policy to engage in authoritarian fantasies. Outrageous claims against President Obama serve only to distract from the real issues and, to that end, help the president’s re-election campaign.

Originally published on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/obama-s-dictatorial-executive-order

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