Soaring gasoline prices have eroded President Barack Obama’s job-approval ratings and exposed him to political attacks even as futures markets, the chairman of the Federal Reserve and some analysts say prices may soon peak.
House Speaker John Boehner, an Ohio Republican, underlined the growing political pressure on Obama last week, saying the president “certainly isn’t gonna win” re-election next year if gasoline prices, now close to a national average of $4 per gallon, reach $5 or $6.
Yet on the New York Mercantile Exchange, gasoline for September delivery settled yesterday at 4.1 percent below the June contract, Bloomberg data show.
“I believe prices will stabilize and that $4 a gallon will be an outlier rather than an average during driving season,” Tom Kloza, chief analyst with the Oil Price Information Service, wrote in an e-mail.
Prices will be kept in check by “demand destruction” as consumers curb unnecessary driving and as several U.S. refineries now shut for maintenance are started up, Kloza said.
The current $3.97 national average for a gallon of gasoline is up 48 percent since Labor Day, Sept. 6, according to AAA, the nation’s biggest motoring group. In California and New York, among other states, prices already top $4.
Fed Chairman Ben S. Bernanke, meeting reporters last week, said prices likely won’t continue to increase at the recent pace and will “stabilize or even come down” should turmoil end in the Middle East. The U.S. Energy Department’s Energy Information Administration expects prices to dip to an average of $3.85 in the third quarter and $3.73 in the fourth. Analysts at Goldman Sachs Group Inc. (GS) say oil prices are poised to slip.
Still, the recent surge in pump prices threatens to sap confidence in the economic recovery, with Bernanke saying it has created “a great deal of financial hardship.” And few metrics attract as much consumer attention and spark as much political maneuvering.
Republican pollster Ed Goeas said the issue is driving broad voter discontent with the economy. In polls, “where it shows up is not in more people saying they’re concerned about gas prices, but more people saying they’re concerned about the economy and jobs,” said Goeas, president and chief executive officer of the Tarrance Group in Alexandria, Virginia.
For the average U.S. household, gasoline this year will cost $1,210 more than in 2009, according to the Energy Information Administration.
Impact on Economy
Higher prices already have put an imprint on the economy, slicing two-thirds of a percentage point from this year’s growth, according to James Hamilton, an economics professor at the University of California, San Diego.
“It is weighing on consumers,” Hamilton said. “You can see it in consumer sentiment. You can see it in consumer spending. The economy won’t be as strong.”
David Axelrod, Obama’s top political strategist, said the White House pressed for a one-year, two-percentage-point cut in payroll taxes in a tax agreement with Republicans last December to increase consumer income. “The precipitous increase in gasoline prices has eaten some of that up,” Axelrod said.
Since the twin oil shocks of the 1970s, gasoline prices have posed a potential threat for American presidents. Jimmy Carter’s presidency was derailed in part by energy-related issues. Amid rising gas prices, inflation rose to as high as 14.8 percent during the 1980 presidential campaign.
‘Worried About It’
Those memories now shadow another Democratic White House as it struggles to nurture an economic recovery. Just 43 percent of Americans said they approved of Obama’s handling of the economy in a Bloomberg National Poll in March, while 52 percent disapproved.
“They’re worried about it, I think, with good reason,” said John Podesta, who was White House chief of staff for President Bill Clinton and now advises the Obama administration. “When the public turns sour, the guy sitting in the Oval Office bears some responsibility.”
Republicans blame high gas prices on the president’s failure to pursue new domestic oil supplies, including imposing a drilling moratorium after the BP Plc oil spill.
“His energy policy is hurting the average American because it’s causing the price of gas to go up,” Representative Michele Bachmann of Minnesota told Fox Business Network on April 27. “We’re not doing anything about expanding supply.”
Supply and demand explains much of the global oil price rise. Oil demand rose 2.3 million barrels per day last year to a record 86.7 million barrels a day; it’s expected to grow by an additional 1.5 million barrels in 2011, with most of that coming from emerging markets such as China, India and Brazil, according to the EIA.
Unrest in the Middle East and North Africa -- which has halted Libyan exports of about 1.5 million barrels per day -- also has tightened supplies.
In the short term, there isn’t much a president can do about prices. So Obama has sought to refocus the debate on tax- code provisions that benefit oil producers and the role of financial speculators in driving prices.
In attacking as unneeded an estimated $4 billion in taxpayer subsidies, the administration points to Exxon Mobil Corp. (XOM), the world’s largest company by market value, which on April 28 reported first-quarter net income of $10.7 billion, up 69 percent from the same period a year earlier.
Hedging on Prices
Wall Street speculators are a favorite target of Democrats because they’re “these bad guys out there who are jacking up the price by just, you know, playing games in the market,” said Representative Ed Markey, a Massachusetts Democrat.
In recent years, heavy consumers of oil, such as airlines, that use the futures market to hedge against price rises have been joined in the trading pits by so-called non-commercial investors.
Speculative bets on rising oil prices by hedge funds, commodity pools and commodity trading advisers, expressed in net long positions on Nymex futures and options, hit 301,118 contracts in the most recent Commodity Futures Trading Commission data. That’s equivalent to a notional 301 million barrels of oil and more than twice the volume in 2008 when a barrel of oil peaked at more than $145, according to data compiled by Bloomberg.
Boosting the prospects that prices may ease is the resumption of activity at U.S. oil refiners.
Refiners typically conduct routine maintenance during the first quarter to be ready for the summer driving season. Valero Energy Corp. (VLO) is restarting refineries in Ardmore, Oklahoma, and St. Charles, Louisiana. Both are expected to be converting crude oil into gasoline and other products by mid-May, Lane Riggs, Valero’s senior vice president for refining operations, said during an April 26 analyst call.
Oil May Fall
Also backing a bearish pricing call is the verdict of analysts at Goldman Sachs that crude oil prices may fall, after about a 50 percent gain the past year. High gasoline prices may curtail demand and speculators may be surprised if a settlement is reached in Libya and Nigeria’s political transition proceeds smoothly, Goldman analysts said in an April 11 client note.
“Prices for benchmark light crudes are potentially vulnerable by $30/barrel over the next six months,” analysts at London-based Edison Investment Research Ltd. told clients in an April 18 note.
To be certain, if unrest spreads to Saudi Arabia, the world’s largest oil exporter, prices could rise. Still, Guy Caruso of the Center for Strategic & International Studies in Washington, a former EIA administrator, said it would take another “rather substantial disruption” in the oil market to bring about the $5-a-gallon prices some commentators anticipate.
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