Gas Prices Rise, and Democrats Point the Finger at Trump

 Alan Neuhauser
  28th-May-2018

WITH MILLIONS OF Americans set to hit the road Memorial Day Weekend and prices at the pump cresting $3 per gallon, top Senate Democrats on Wednesday traded the august halls of the Capitol for a noisy local thoroughfare to "Demand Lower Gas Prices."

Speaking outside an Exxon near the Capitol, Sen. Maria Cantwell of Washington, the top Democrat on the Energy and Natural Resources Committee, called on President Trump to act and sent a pair of letters to the White House demanding the administration lean on OPEC nations to ramp up oil production.

Cantwell was joined by Senate Minority Leader Chuck Schumer of New York and Sen. Bob Menendez of New Jersey. And the spectacle of Democrats – generally seen as opposed to more fossil fuel production due to its impact on climate change – calling for more oil development did not escape notice.

"We are calling on President Trump to act," Cantwell said. "We do not want to see the price of oil get more expensive as we go into the summer driving season."

The average price at the pump is at its highest point since November 2014 and about 60 cents higher than last year. But blaming the president for high gasoline prices – and acting like he can do something about them – is a political tactic perhaps as old as the industrial age itself.

"Democrats did that with President Bush, and Republicans did that with President Obama," says Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin. "This is a pretty typical football to throw around. It's not clear what President Trump can do. It's not like President Trump could order oil and gas companies to produce more."

Presidents are not entirely without influence over economic markets – including oil and gasoline. Typically, that's in the form of long-term policy or indirect influence, such as calming a flare-up in the Middle East. Trump, though, finds himself in the unusual position of having at least a pair of levers at his disposal that could have a more short-term impact:

Analysts, trade groups, former officials and scholars have broadly agreed that the president's decision to withdraw from the Iran nuclear deal, and re-implement U.S. sanctions, likely helped drive up benchmark oil prices by stoking investors' fears about geopolitical turmoil and a cutoff in Iranian oil production. Rapprochement, though profoundly unlikely, could at least in theory allay those concerns.

The Trump administration has also sought to cultivate close ties with Saudi Arabia, OPEC's leading member. That relationship, built on a mutual interest in isolating Iran and on support for Saudi involvement in Yemen's civil war, would suggest that Trump could lean on Saudli leaders to raise the production caps that OPEC instituted to stabilize world markets and prop up oil prices.

"Those are two important factors: the impact that sanctions have on the oil supply in Iran, and then the dialogue between this administration and the Saudis to keep oil prices from getting out of hand," says Jason Bordoff, former White House energy adviser under the Obama administration.

Voters' perceptions of how much control a president has over gas prices, though, strongly correlates with their political affiliation: The Pew Research Center in 2013 found that while 71 percent of Democrats and 54 percent of Republicans during Bush's presidency said that the price of gasoline is "something a president can do a lot about," those numbers roughly flipped under President Barack Obama to 42 percent of Democrats and 69 percent of Republicans.

"Our ability to perceive and interpret gas prices and presidential responsibility is the tool of our partisanship, not so much determined by our economic theories," Charles Franklin, a political scientist at the University of Wisconsin, wrote in a blog post at the time

But just how much prices on the pump can be a drag on a president is unclear: Multiple analyses have found some correlation with approval ratings, but no event happens in isolation: When gas prices began to climb in 2002, for example, Bush's approval ratings started to fall – but he was also suffering setbacks in the invasion of Iraq. More recently, Obama took blame from Republicans – and even the current president, a fact that didn't escape Senate Democrats – as gas prices climbed in the course of his 2012 re-election campaign, but the trend did little to dissuade Americans from giving him a second term.

Trump has presided over an era of steadily rising oil prices: After flat-out production by OPEC flooded world markets and dropped oil prices to a nadir of $26 per barrel in February 2016, economic growth and OPEC production caps have helped reduce the glut and stabilize oil markets, allowing benchmark prices to hover between $70 and $80 per barrel.

After years of low gas prices, the resulting increases until now have not been enough to prompt consumer anger – or prompt the president to take action at home or with allies.

Trump's pointed rhetoric and whipsaw decision-making, though, could play an outsize role determining just how much influence he'd be able to exert – or if any such outreach could exacerbate the problem.

"The language, the verbiage he uses, is more potent," says Patrick DeHaan, head of petroleum analysis at GasBuddy. "There are sharper edges with President Trump that could hurt relationships with countries that could reduce oil supplies."

To be sure, commodities markets are complicated, shaped by countless factors around the globe that have spurred both benchmark Brent crude oil and the nation's average gasoline prices this week to their highest points since November 2014.

On the supply side, seasonal maintenance that takes refineries offline, the yearly switch to cleaner-burning and more expensive summer fuel blends, OPEC's oil production caps and an economic freefall in South American oil-producing giant Venezuela have reduced the amount of oil and gasoline on the world market.

Meanwhile, the start of the summer driving season, American enthusiasm for trucks and SUVs during the previous four years of low gas prices, and global economic growth have driven up demand.

And, as always, there remains the sometimes inscrutable, at times unpredictable and occasionally irrational reactions of investors – particularly when it comes to geopolitical turmoil, even when such upset doesn't immediately threaten global oil supplies, such as Trump's decision on Iran.

"The main driver is oil prices, and he has little control over that," Paul Sullivan, economics professor at National Defense University and an adjunct at Georgetown University, writes in an email. "Politicians can say whatever they want about how much control they think they have on oil and gas prices, but they are just little swarms of market mosquitos in the context of the massiveness of the overall set of oil markets."

"The long-run trends," he adds, "are far more important than the short-term noise."

Last year, the U.S. became the world's largest producer of oil and natural gas, and it's on track to become the world's top oil producer this year. The Trump administration has heralded an era of "energy dominance."

Its policies on trade, immigration and diplomacy, however, could undercut that goal, experts say:

"If you really want energy dominance, you ought to ramp up on domestic production and ramp down on domestic consumption. His policies are making it harder to consume less and making it harder to produce domestically more," Webber says.

The administration's tariffs on steel have made oil and gas drilling – as well as building new pipelines – more expensive. Its crackdown on legal immigration has made it harder for energy firms to find employees for highly specialized jobs in the industry. And its rollback of vehicle fuel standards promises to slow what was anticipated to be a decline in U.S. demand for gasoline.

"The best thing that we can do to insulate ourselves against the volatility in global oil prices is reducing our dependence on oil in the first place," Bordoff says. "So this administration's interest in rolling back fuel standards exactly at this time that dependence on oil hurts consumers is completely contradictory. It hurts U.S. consumers."

The full effect of Trump's decision to withdraw from the Iran deal, and his more abrupt announcement Thursday that the U.S. was canceling its planned summit with North Korea, also remains to be seen.

Saudi Energy Minister Khalid Al-Falih on Friday told reporters that OPEC will "likely" boost oil supplies. Oil prices sharply fell shortly after the announcement.

DeHaan, of GasBuddy, gives "65 percent odds" that the cartel will follow through on the decision when it next meets in June. But it's a decision, he says, driven as much by self-interest as U.S. influence: The Saudis are expected to be eager to reclaim market share left by their Iranian rivals and to ensure the oil prices don't approach $100 per barrel, a price-point that could reignite American interest in reducing its oil consumption.

"If President Trump is ruffling feathers left and right, it's going to be harder for him to exert pressure. Who's going to want to bow to pressure from Trump if that's how he goes about things?" DeHaan says. "Overall, he still has very little control over gas prices, but you could argue that all that noise is leading to slightly higher gas prices and slightly less influence, because it's more concerning to the market and to our partners who produce oil."

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Domain: Afterhours
Category: Entertainment
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