Since the inauguration of Barack Obama, American drivers have seen the price of gasoline increase by over 98%. On January 26, 2009, regular gasoline sold at $1.832 per gallon, according to the U.S. Energy Information Administration. By February 27, 2012, the price at the pump was $3.641 per gallon.
That's a 98% increase in gas prices over three years.
It's a political year and increases in gas prices tend to get politicized, with the party in opposition trying to convince Americans that the nightmare at the pump is the fault – at least partially – of the person sitting in the Oval Office.
The silliness of the political season has included promises by former Republican candidate Michele Bachmann and current candidate Newt Gingrich to reduce gasoline prices to $2.50 per gallon or less.
Fuel prices are a big part of our transportation costs. Most of us can't get to work without some motorized mode of transportation. Food is delivered by trucks running on gasoline.
But what can a U.S. president do to lower the price? To answer that question, let's look at the components of pricing gas.
According to the U.S. Energy Information Administration (EIA), the price of gas contains the following:
• Crude oil;
• Refining costs and profits;
• Distribution and marketing costs and profits; and
• Taxes.
Seventy-six percent of gas prices is due to the average cost of crude oil purchased by refiners. Crude oil is that mixture of hydrocarbons existing in a liquid phase in natural underground reservoirs.
In layman's terms it's the black gold lying beneath the surface.
Refining costs and profits make up 6% of the gas price you pay at the pump. The EIA defines refining costs as the difference between the spot price of gasoline and the cost of oil purchased by refineries. By spot price we mean the price for a one-time open market transaction or purchase of a specific quantity of gasoline which is to be delivered immediately.
Taxes refer to the national monthly average of federal and state taxes that are applied to gasoline. Taxes make up 12% of the price you pay at the pump.
Distribution and marketing costs make up six percent of gas prices. Distribution and marketing costs refer to the difference between the average retail price of gasoline and the sum of refining costs, crude oil costs, and taxes.
It's the crude oil component that gets the most attention during any discussion on gas prices. Critics of Mr. Obama's gas price policies would like to see the President focus on supply and demand of oil. For example, ranking Republican member on the Senate Committee on Energy and Natural Resources, Lisa Murkowski (R-AL), recently expressed that she sees President Barack Obama as just parroting Republican proposals for solving the nation's energy price crisis.
According to Senator Murkowski the problem of rising gas prices is primarily a supply and demand issue and President Obama's refusal to allow for an increase in drilling on federal land and drilling in the non-wilderness areas of the Arctic Natural Wildlife Refuge (ANWR) has led to the high energy prices we are seeing now.
Drill, baby, drill has been the battle cry of Mr. Obama's critics. Does this battle cry amount to good policy?
In a 2008 analysis, the EIA acknowledged that drilling in ANWR would have some impact on global oil prices. The impact, however, would not be a large one.
EIA also expected to see a reduction in the United States' dependence on imported foreign oil, based on its 2008 analysis. Overall American consumption for oil and gas would drop, however, even with drilling in ANWR. The fall in demand would result from a possible reduction in oil exports by the Organization of Petroleum Exporting Countries (OPEC) in response to increased production in ANWR. In other words, OPEC would make this move in order to keep oil prices high resulting in reduced demand.
But even if there are some positive benefits, such as a reduced dependence on imported oil, the EIA acknowledged uncertainties with development in ANWR.
For example, there is uncertainty regarding the size of the underlying resource base. We don't know, in other words, how big ANWR's oil reservoirs are.
There is also uncertainty about the quality of the oil in ANWR. This information is necessary to determine at rate i.e., barrels per day, oil could be produced.
In the end, opening up ANWR will not only require approval by the Obama Administration, but also the Congress. While a Republican-controlled House may tend to support opening ANWR as well as other outer continental shelf drilling, a Democratic-controlled Senate and a Democratic president may be more amenable to the environmental concerns held by the left wing of their party. Also, as long as the economic benefits are minimal at best, insignificant impact on gas prices may provide an additional argument for not taking any further action on drilling.