Does the President Have Power Over Gas Prices?

I recently stumbled upon the Twitter account @pollreport, which allows me to stay up-to-date on the endless barrage of presidential candidate polling but also treats me to more interesting cultural political barometers like this one:

Personally I think the truth probably falls in the wide chasm between “do a lot” and “beyond any control,” but digging into the link I guess they would put me in the 12% of “Unsure.” I think it’s very interesting that over half the nation (according to this poll) thinks the President can do a lot about gas prices. Also at the link, a poll from last May shows 38% blaming “oil and gas companies” for “the recent spike in gas prices.” 22% outsource the blame to “oil exporting nations,” but another 12% give it to the “Obama administration.”

If you blame Obama for high gas prices, you probably think the President has restricted drilling or is driving inflation with his fiscal policies. If you think oil and gas companies are to blame, you probably think the President can get tough with them and tax or regulate them more to limit their wild profits. Either way, half the people think the President can have a big effect on the price at the pump. (That helps explain why a few months ago Bachmann was making really bold promises to bring gas back to $2.00 a gallon, and why Gingrich is now making slightly less bold promises to bring it back to $2.50.)

But does the President really have enormous power over the price of gas, or is that a fascist fantasy promulgated by a gullible electorate that wants a mighty monarch instead of a limited, divided government?

Well, technically, the President can try to mandate the price of gas, but I don’t think anybody wants to return to the long lines of the 70’s. I assume most people expect the President can affect the price of gas with his administration’s energy policies. Certainly the President’s attitude towards drilling can have some effect, but I seriously doubt it’s as much as Republicans think. For all the partisan yelling about Obama’s oil antipathy, US oil production has actually reversed a decades-long decline in recent years, and net imports have fallen drastically since 2006. Did this reduce gas prices? (As for inflation claims, well, oil and gas are pretty much the only things experiencing any “inflation” right now.) Likewise, the President’s attitude towards oil and gas company profits can probably have some effect, but I seriously doubt it’s as much as Democrats think. For all the partisan yelling about record profits, Exxon’s most recent margin was allegedly just one third of a cent per gallon, which, as an astute Reddit commenter put it, “They could cut the price 3 cents and make no profit and you as the consumer wouldn’t notice the difference.”

The complicated truth is that oil is a global commodity constantly being traded by a global market by thousands (millions?) of buyers and sellers. When that price goes up, the price at the pump has to go up, and all of the energy companies in between might not be making a single extra penny per gallon. From the left side, if you try to regulate their razor-thin margins away, you could run them out of business. And from the right side, our domestic oil production has already been increasing for a few years without having any noticeable effect on our gas prices. I’m willing to learn from someone who is more of a financial commodities expert, but I’m guessing that most of that oil goes right to the global market. Even if the United States temporarily became completely oil independent, that guarantees nothing about what the price of that oil would be. Maybe some overall shipping costs could go down due to increased locality, but you’re still going to have all the costs of extraction and some sort of market with contracts that get the end product to pumps all over the country.

Demand for global oil is high and rising further, though I can’t explain why the global oil price seems to fluctuate so sharply sometimes. You might be able to put some blame on “speculators,” and I’m surprised they were nowhere to be seen on that poll since they seemed to be all the rage a few years ago. I’ve read claims that speculators are not the culprits, and that they can only buy what someone else is selling and have just as much a chance of losing money as making money. I believe Thomas Sowell says in Basic Economics that commodities traders help the markets immensely by guaranteeing buyers for products and that sort of thing. I’m not convinced this explains all the fluctuations in oil prices, and I’ve seen arguments that there are types of trading mechanisms where there isn’t a seller on the other side but the price can still be driven up, or something, but I’m pretty ignorant about these kinds of things. My general understanding, though, is that investors make our access to gas more reliable, and any attempts by our government to reduce their influence would probably make things worse, not better.

So while I can’t explain every fluctuation in the global oil markets, I do know that these markets are by far the biggest factor in the price at the pump. It’s a complicated product with incredibly high demand that’s expensively extracted and refined by companies that make relatively low profit margins but sell a whole lot of it, and there’s very little the President can do to make that price higher or lower. The President is not a King, and there are some tides he just can’t turn.