Joshua Penn

Dr. Stacy Thorne

Engl 1301


Is Obama Really To Blame?

            Like millions of Americans, I own a car.  In order for a car to work though, it depends on gasoline.  Gasoline is a commodity that has seen 

violent swings in prices for the last decade.  The current price of gas at my local Quik Trip is $3.63.  This price has been as low as $2.99 and has 

been as high as $3.99 in the last four months alone.  Many of my fellow G.O.P. brothers and sisters will have you to believe that President Obama 

is solely to blame for these price hikes.  This is the furthest from the truth.  There are many reasons that our prices at the pump are increasing, many 

of which the President has little power to change.  As was previously stated, gas is a commodity.  As such it is affected by market trends.  Gas 

prices are also affected by external issues on which the President has little say.

            The first thing that you learn when you take an economics course is the theory of supply and demand.  Think of a child’s seesaw.  The recession depressed oil demand, which depressed gas prices. As the global recovery takes hold, more people are working and driving.  This is being felt not only by American’s, but by the entire world.  Until supplies catch up to the demand we will be looking at even higher prices at the pump.  According to Benoit Faucon, “The bottom line for demand: Global consumption of oil and liquid fuels should increase by about 1.3 million barrels a day in the third quarter from the first quarter, according to the U.S. Energy Information Administration. But supply will fall by about 310,000 barrels a day in the third quarter from the first.” (Faucon par 14). 

            Global politics play a part in the price we pay for our gasoline.  The largest parts of the world’s leading oil producers could be defined as being in turmoil and chaos.  Because of the climates of the governments that produce the majority of the world’s crude oil, Iran, Sudan, Iraq, Syria and Yemen, countries in Europe and Asia have been in a panic to buy stock for them leading to inflated prices.  In layman’s terms, these countries have started to hoard.  According to James Williams,” It's exactly a mess,… I would say in terms of overall geopolitical risk of a major supply interruption with limited spare capacity to handle it, this is the worst of times.”(Taschler par 3).

            Gas prices are also seasonal.  Like April showers and bee’s beginning to pollinate flowers, gas prices always rise during the spring and holiday seasons.  It is during this time that most refineries do their maintenance and reduce their output.  There are built in premiums in the price of gas to offset this reduced output.  An article in USA Today puts it this way, “Refineries need major maintenance once every four years, on average. On a practical level, that means one-fourth of the nation's refining capacity is temporarily shut down in the first quarter of every year. Because the U.S. has half the number of refineries it did in 1980, a delay in getting one or two back up and running has a greater impact than in the past.” (“Spring Means” par 8).

           The same article states, “Because of the Clean Air Act, oil refineries have to make a special blend that evaporates easier in the warmer air.  This leads to an increase in price of five to fifteen cents per gallon. (“Spring Means” par 9).  This leads speculators to try to hoard futures commodities to try to make a profit.

        Oil is a commodity that is traded on the Futures market.  An oil future is simply a contract between a buyer and seller, where the buyer agrees to purchase a certain amount of a commodity, in this case oil, at a fixed price.  There currently is no upper limit on the prices that speculators can place when dealing in futures commodities.  It is the speculators, not the producing countries that are setting the market prices.    CFTC chairman Bart Chilton has become a leading voice in trying to curtail this set up.  In a speech he gave in February he stated:

     “The CFTC has not yet been able to implement Congressionally-mandated position limits to put the brakes on excessive speculation in oil and other commodity markets. Meanwhile, trade associations representing Wall Street interests have sued us in federal court in order to impede our imposition of position limits. So, I find myself repeating—and repeating—the same message: it’s high time to kick it in gear and use the one tool we have to appropriately address high oil and gas prices.” (Oak par 13) 

Speculators are basically writing their own checks.  How much are they making?  From the same speech Chilton quoted a study done by Goldman 


            ”A Goldman Sachs study last year stated that each million barrels of net speculative length in the markets adds as much as 8 to 10 cents to the price of a barrel of crude oil. As of February 23, 2012, the CFTC Commitment of Traders Report showed that “managed money” held net positions in NYMEX crude oil contracts equivalent to 233.9 million barrels. Using the Goldman Sachs research figure, and multiplying 10 cents times 233.9 million would mean that, theoretically, there’s a “speculative premium” of as much as $23.39 a barrel in the price of NYMEX crude oil.” (Oak par 14) 

This sounds like a great job if you can get it.  Speculators are making money by taking advantage of a system set up to ensure that a free market would dictate price equality.

            It is easy for those of us on the outside who don’t know the inner workings of a system to blame the people in charge for any shortcomings that inadvertently affect us and our daily lives.  Obama is not to blame for the prices we pay at the pump for our gasoline.  These prices have nothing to do with who is in office, whether they be a democrat or a republican.  We can thank speculators, global politics, the changing of the seasons and theory of supply and demand for the prices which we are currently suffering.  Think about that the next time you curse the man’s name because it cost you $90.00 to fill up your SUV. 


Works Cited

Faucon, Benoit. "Rising Demand for Oil Spells More Price Pain." The Wall Street Journal, 27 Feb. 2012. Web. 19 Apr. 2012. <>.

Oak, Robert. "Why Are Gas Prices Skyrocketing?" The Economic Populist, 26 Feb. 2012. Web. 20 Apr. 2012. <>.

"Spring Means Long Days, Pretty Flowers." USA Today. Associated Press, 07 Apr. 2012. Web. 21 Apr. 2012. <>.

Taschler, Joe. "Global Turmoil Pumping up Gas Prices at Home." - JSOnline. Journal Sentinel, 25 Feb. 2012. Web. 19 Apr. 2012. <>.


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