President Obama says he is not responsible for US Gasoline Price Increases

What is the reason for the rising cost of gasoline since the year started? The most major and simple reason is the increasing crude prices. In particular, Brent or North Sea crude’s spot price rose by $16 per barrel since the month of January. Considering that one barrel consists of 42 gallons, that adds up to an increase of 38 cents in the cost of one gallon of gasoline. In New York, spot gasoline prices have also grown by around 41 cents for every gallon during the same period.

What is the relevance of Brent oil prices to U.S. gasoline prices? The United States imports gasoline refined from Europe and North Sea crude. Even if the imports comprise below 10% of the gasoline consumption in the United States, they are needed to meet domestic demand. Moreover, their cost sets gasoline prices whether or not more affordable sources of crude are utilized to refine majority of the gasoline in the country.

What causes the increase in North Sea current crude oil prices? A probable reason for this is the weak supply. Production of North Sea or British crude has been reduced for quite some time. In quarter one of 2007, output was lower by 1.7 million barrels daily. At the close of 2011, it dropped to 1.1 million barrels a day. The demand all over the globe causes an increase in the cost of North Sea crude and all other crude coming from other parts of the world.

Although there is a common notion that President Obama is anti-oil, it is unprecedented that domestic oil production is rising, a trend not seen since the administration of President Johnson. This shows that none of the gasoline price increases is caused by the President. From $22 in 2002, oil prices increased to an average of below $100 per barrel in 2008, prompting supply-side adjustments. It is for these reasons that many do not credit President Obama for increases in production, just like previous presidents were not responsible for output reductions.

It is unfortunate however, that it is the president that gets all the blame for the changes in the world market during their first term in the office. Still, the president generally does not cause any of this.

By Chris Termeer