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Townhall Finance...
Barack ‘All of the
Above’ Obama
by Larry Kudlow
President Obama fought back against rising oil and retail gas prices in
a speech in Florida on Thursday. But it was a curious speech. He
started out by mocking Republicans, stating that GOP candidates are
licking their chops as gasoline prices rocket up. He said, “They are
already dusting off their three-point plans for $2 gas. I’ll save you
the suspense: Step one is drill, step two is drill, and step three is
keep drilling.”
Very clever. It’s kind of what Newt Gingrich said in this week’s
Arizona debate.
But here’s the curious part. Obama said, “If we’re going to take
control of our energy future; if we’re going to avoid these gas-price
spikes down the line, then we need a sustained all-of-the-above
strategy that develops every available source of American energy --
oil, gas, wind, solar, nuclear, biofuels, and more.”
That’s a Republican policy. All of the above. George W. Bush used to
say it. John McCain ran on it in 2008. And you hear Republicans talk in
similar terms all the time. “All of the above.”
Obama next took credit for record oil and gas production. He took a bow
for more rigs and the approval of pipelines (including from Canada!).
He then argued that his administration has opened millions of acres for
oil and gas exploration.
Well, I don’t know about the pipeline part. He sure hasn’t opened
Keystone. And most people in the oil business say the administration
has been slow-walking off-shore permits, restricting access on federal
lands, and excluding Alaska and the Arctic. They also note the general
nuisance of the EPA, including its recent attack on hydraulic fracking.
But people in the business will tell you that production is high, and
that things began turning around years before the administration took
office. Of course, the great energy revolution has come with all the
new shale fields in the Dakotas, Pennsylvania, Ohio, Texas, and
elsewhere, which has led to a gusher of new oil and natural gas.
The fact that Obama sounds like a Republican doesn’t mean that he’s
opened the barn door to all manner of new leases and permits. But the
reality is that his administration has loosened things up a bit.
Whether drill, drill, drill would produce $2 gasoline is an interesting
debate. But surely the U.S. is on the road to energy independence if
the government is more hands-off.
The fact remains, however, that right now there’s rising public angst
over higher gasoline prices. That could become an economic problem, but
it’s more rapidly becoming a political problem for the White House.
A lot of consumers and motorists are trying to figure out why all this
new energy production hasn’t stopped prices from rising. The best
answer I can come up with is Iran. As the Iranians rattle their sabers
over the Strait of Hormuz, oil traders are taking long positions in the
market. According to the CFTC (Commodity Futures Trading Commission),
traders with net-long positions of oil contracts worth $100,000 have
increased from 181,000 in early October to 281,000 lately. (Hat tip to
economist Conrad DeQuadros). During this period oil prices have jumped
about $35, or 37 percent. Today the WTI contract for light sweet crude
closed above $108. And it’s worth noting that non-oil commodity indexes
during this period have increased by less than 2 percent. That means
the oil spike is a supply shock, not economic-demand driven. And since
mid-December, AAA retail gas prices have increased about 11 percent
from $3.22 to $3.60.
Undoubtedly, gasoline prices are following oil prices higher. And the
oil-price jump is a function of trader worries that Iran might choke
off the Hormuz strait, leading to a substantial, if temporary,
oil-supply shortage.
Obama cites the Iranian situation in his speech, and he’s got an
important point. We can debate the merits of Obama’s Iranian policy.
But the reality is that energy prices are rising on speculative trading
demands over a potential worst-case scenario.
If that worst case scenario doesn’t come to pass, energy prices could
well retreat. In any case, even the oil and gas spike thus far is not
likely to have a significant economic impact. All that oil and gas
shale production from private, not federal, lands is a big reason why.
The new natural-gas supplies have caused the price of natural gas to
fall substantially. That means much lower home-heating bills for
consumers. And the relatively mild winter so far is another factor
contributing to lower utility bills.
The moral of this story is that America should continue to drill,
drill, drill, and put up the Keystone pipeline, and work with Canada to
build an energy-independent North America. But as long as the Iranian
threat is unsolved, the future risk of higher energy prices is going to
be a fact of life.
Read this and other articles at Townhall Finance
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