According to the latest figures, the price of gasoline is higher today than it has ever been at this time of the year. That is big news, but it is not good news. Normally, the price per gallon in February is one of the lowest of the year. Driving is reduced in the winter, and by the end of winter there is frequently a buildup of gasoline supplies due to the lower winter demand. In March, most refineries have to shut down for a short time to recalibrate production to their summer mixtures at the same time that miles driven pick up. This leads to a rise in gasoline prices that peak around Memorial Day in late May. If this trend holds as usual and without any sort of other factor kicking in, the current expectation is that the price per gallon will peak around $4.30 to $4.50 at that point. such a price would be, by far, the highest ever.
The effects of high gasoline prices are clearly damaging for the economy. First of all, there is the obvious problem that folks are forced to spend more on fuel and this sucks cash out of the consumer economy. A rise in the gas price to $4.50 would take much more out of the economy each week than will be put back in by the recent payroll tax cut. Some folks on the margin will have to give up other items in order to get by. A second impact, however, is the psychological effect on the nation. The cost of filling up at the pump is one that folks see all the time. As it rises dramatically to new highs, many folks worry about how much worse it will get and they start to cut back elsewhere just to keep a margin of safety. In other words, it is not only those who literally cannot afford higher prices who cut back elsewhere; many others are influenced to cut expenditures. The totality of these cutbacks in spending ripple through the economy and slow or stop economic growth.
So why is the price of gasoline so high? It would be easy to say that there are worries about the situation with Iran, and that would be true. It would, however, be only a small part of the story. The real story, however, is that gasoline prices have soared during the last three years. When Obama took office, the price per gallon was less than half of its current amount. That price was depressed at the time because of a huge fall off in driving during the recession. Obama, however, took action after action that drove the price ever higher by cutting the supply of gasoline. For example, Obama put a moratorium on off shore drilling in place after the BP spill in the Gulf of Mexico. The stoppage covered all drilling in the most prolific off shore area of American waters. This moratorium was followed by a new permitting procedure which has drastically cut the numbers of wells being approved for drilling and dramatically increased the cost to drill such wells. Not surprisingly, the amount of oil produced in the Gulf has been much less than it would have been under previous practices. The latest estimates are that oil production in the USA has been cut by about three quarters of a million barrels of oil per day just due to these actions of Obama regarding off shore drilling. To put this into perspective, one needs to understand that this is about 4% of America's daily oil usage. Adding this oil back into the supply stream would have meant much lower prices for gasoline.
But this was not all that Obama did. The Obama Energy Department has stopped drilling on all sorts of on shore areas as well. It has threatened drillers who use hydraulic fracturing for completion of wells, thereby again reducing the number of wells drilled. Obama stopped the Keystone XL Pipeline which would have delivered another 800,000 barrels of oil each day to the refineries in Texas. (Admittedly, the Keystone would not have yet kicked in, but the others would have been working in full force.) Because of the shale oil and gas production boom, total American production has not declined, but it could easily have been about 25% higher but for Obama and the Obamacrats.
The impact of the current high price of gas should be felt in the coming months as the price level reaches emotionally high levels. Expect fewer folks to go on vacations. Expect declines in non-essential purchases. Expect a modification to the mix of autos sold and, possibly, a decline in auto sales as well if things get bad enough. Expect higher prices for food and other staples which have to be brought to market by vehicles using more costly fuel. Ultimately, expect a decline in the rate of growth of the economy. Even though it seems unlikely at the moment, a big enough price rise will mean a renewed recession.
There is another problem that Obama has layered on top of the American people. There are new regulations from the EPA which are imposing dramatic costs on electric power plants that operate on coal. As a result, there have been more than a dozen plants which have been scheduled for shutdown later this year by the utilities, and the full impact of the new regulations has not yet been felt. These shutdowns will inevitably lead to higher costs for energy in the USA. Higher electrical energy coupled with higher costs for oil based fuel will be a one-two punch that the economy will not be able to withstand.
During the Great Depression, Franklin Roosevelt adopted the song "Happy Days are Here Again" as the theme song for the Democrats. Obama seems to want to rewrite that into "Recession Days are Here Again" just by his energy policies alone.
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