Gas prices have risen 29 cents per gallon since December, with regular-grade gas now averaging $3.64 a gallon in the Washington region at a time of year when consumers usually enjoy a respite from price hikes.
The high cost at the pump could turn into an election-year mess for the president, whose approval ratings have surged recently as the economy improved. Republicans, sensing an opportunity, have blamed Obama for not giving oil companies greater freedom to drill for new U.S. supplies that might ease prices.
The political dynamics are muddied by the Iran factor. In their debate Wednesday, the leading GOP presidential candidates vowed to prevent Iran from acquiring a nuclear weapon. Yet the rise in oil prices recently has been augmented by the tightening of U.S. and European sanctions on Iran and its oil exports.
Some Democrats are also urging Obama, who has pressured other nations to curtail purchases of Iranian oil, to protect consumers by releasing oil from the Strategic Petroleum Reserve, as he did during the Libyan conflict last summer. Most presidents are reluctant to tap the reserve without a dire emergency, and many experts believed the release last year had a fleeting impact on gas prices.
Brad Plumer explores whether tapping the nation’s strategic oil reserves could help lower gas prices:
As oil and gas prices soar — due, in part, to tensions with Iran — many Democrats have called on President Obama to tap into the nation’s Strategic Petroleum Reserve to moderate the shock. But would this move actually work? That’s not so clear.
A new policy brief (pdf) by Philip Verleger of the Peterson Institute for International Economics lays out how the United States might use its crude reserves to blunt the effects of the new oil sanctions on Iran. Verleger starts by noting that it’s still uncertain whether the U.S. and E.U. embargo will actually raise oil prices in the long run. (One alternate scenario is that Iranian oil will go to refiners in India, who would sell at a discount.) But if oil does keep getting pricier, Verleger writes, then the United States could try to sell some of its surplus crude on the world markets — say, 500,000 barrels a day for up to 18 months — to avoid serious economic damage.
The United States certainly has some oil to spare. By Verleger’s calculations, the United States now has 276.4 million barrels of crude sitting in its Strategic Petroleum Reserve(SPR). If anything, he notes, the United States is storing far more oil than is required under international agreements, because domestic production has risen and U.S. gasoline demand has fallen. “The decline in U.S. net imports,” Verleger writes, “frees up significant amounts of SPR stocks.” In other words, because our domestic supply has become more secure, we have more oil to send to Europe to ease the crunch there.
The big question, though, is whether the United States should use its strategic reserves right now, and whether a release would actually tamp down gasoline prices. In theory, says James Hamilton, an oil expert at the University of California San Diego, the Strategic Petroleum Reserve is only supposed to be used when there’s a sudden and severe loss of oil supply — as happened after Hurricane Katrina, when 25 percent of U.S. production in the Gulf of Mexico went offline. “That was a short-term, temporary disruption,” Hamilton said. “With Iran, we don’t know the endgame yet. There are still too many uncertainties.”
The Untied States is getting more efficient oil-efficient, but it’s not doing it quickly enough, reports Brad Plumer:
So the United States is legitimately getting more oil-efficient as crude prices have risen. For example, the University of Michigan’s Michael Sivak keeps a handy data set showing that the average fuel economy of U.S. vehicles has risen sharply in recent years. That should improve further once new, stricter CAFE standards for cars and light trucks kick in.
The trouble is that this increase in efficiency hasn’t been fast enough to offset the rising price of oil. The United States might be consuming less and drilling more, but it’s still at the mercy of global forces that affect crude prices everywhere. To take one example, there’s been a lot of hype over North Dakota’s Bakken shale field, which now produces an impressive 500,000 barrels of oil per day. But that’s only about the size of the one-year uptick in Chinese oil consumption between 2010 and 2011.
So even with increased efficiency, the United States is still getting hammered by rising oil prices. One place to see this is in import data. America now imports 15 percent less foreign oil than it did in 2005. Yet prices remain stratospheric, thanks to healthy demand overseas and the tense situation in the Middle East (Libya last year, Iran this year). And so, even with imports falling, the United States still paid more for foreign crude in 2011 — $326.5 billion — than it did in any year save for 2008. Likewise, Americans are driving less, but they still paid $102 billion more for gasoline last year than they did in 2010.
We might be able to squeeze ever more economic activity out of a given barrel of oil. But if oil prices rise even faster, that can still lead to less economic activity overall. And right now, we’re still losing the race against oil.