Obama Disappear As Gas Prices Rise
Gasoline prices have never been higher this time of the year. At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April. “You’re going to see a lot more staycations this year,” says Michael Lynch, president of Strategic Energy & Economic Research. “When the price gets anywhere near $4, you really see people react.” Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that’s imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That’s 19 percent higher than a year earlier.
Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy. A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That’s only 0.2 percent of the total U.S. economy, but economists say it’s a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.
The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data. The OPEC heavyweight saw production decline by 237,000 barrels per day (bpd) from three-decade highs of 10.047 million bpd in November, the JODI data showed on Sunday. The draw-down was sharper for the actual amount exported, declining by 440,000 bpd, or 5.6 percent, to come in at 7.364 million bpd, the data also showed. The level would still be similar to exports after a steep ramp-up last June. In its monthly report on February 10, the IEA put Saudi Arabia’s production number for December slightly lower at 9.55 million bpd, a disparity of 260,000 bpd versus the JODI data. JODI, an initiative coordinated by the International Energy Forum (IEF), depends on participating member states for data collection. The IEA estimated Iran’s oil supply in December to have been 3.45 million bpd, marking a drop of 100,000 bpd.
For the third month in a row, no details were available for the United Arab Emirates (UAE) and Libya, the immediate reasons for which are unclear. Together with other Gulf oil exporters, the UAE has been in focus as a possible source of alternative supply for at least some of Iran’s crude. Widening sanctions have seen several Asian clients of Iran’s oil, including top importer China, send high-level delegations to the region in the last few weeks. Iraq, another frequently-cited supplier to make up for part of the Iranian oil shortfall following European Union sanctions, reported no major changes to its supply and export regime. Authorities there are pursuing an ambitious production expansion plan with the aim of reaching 12 million bpd by 2016.
Iran has stopped selling crude to British and French companies, the oil ministry said on Sunday, in a retaliatory measure against fresh EU sanctions on the Islamic state’s lifeblood, oil. “Exporting crude to British and French companies has been stopped … we will sell our oil to new customers,” spokesman Alireza Nikzad was quoted as saying by the Ministry of Petroleum website. The European Union in January decided to stop importing crude from Iran from July 1 over its disputed nuclear program, which the West says is aimed at building bombs. Iran denies this.
Iran’s top oil buyers in Europe were making substantial cuts in supply months in advance of European Union sanctions, reducing flows to the continent in March by more than a third – or over 300,000 barrels daily. Among European nations, debt-ridden Greece is most exposed to Iranian oil disruption. Motor Oil Hellas of Greece was thought to have cut out Iranian crude altogether and compatriot Hellenic Petroleum along with Spain’s Cepsa and Repsol were curbing imports from Iran. Iran was supplying more than 700,000 barrels per day (bpd) to the EU plus Turkey in 2011, industry sources said. By the start of this year imports had sunk to about 650,000 bpd as some customers cut back in anticipation of an EU ban.
Brent crude oil prices were up $1 a barrel to $118.35 shortly after Iran’s state media announced last week that Tehran had cut oil exports to six European states. The report was denied shortly afterwards by Iranian officials. EU’s new sanctions includes a range of extra restrictions on Iran that went well beyond U.N. sanctions agreed last month and included a ban on dealing with Iranian banks and insurance companies and steps to prevent investment in Tehran’s lucrative oil and gas sector, including refining. The mounting sanctions are aimed at putting financial pressure on the world’s fifth largest crude oil exporter, which has little refining capacity and has to import about 40 percent of its gasoline needs for its domestic consumption.
The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008. The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That’s up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon. Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn’t unusual — states on the coasts charge some of the nation’s highest gas taxes.
Americans spent 8.4 percent of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That’s double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS. Gary Goodman commutes into Manhattan from Edgewater, N.J., because gas, tolls and parking make the cost of driving prohibitive.
Experts expect demand to keep rising. World oil demand is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration. The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran’s attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world’s third largest oil exporter.
In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world’s oil flows. Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence — and lower pump prices. “Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel,” Gingrich said at a campaign event in Los Angeles Thursday.
So what’s Obama’s response? He treats it like a badge of honor, saying this week that “gas prices are on the rise again because as the economy strengthens, global demand for oil increases.”