The Price of Oil: Don’t Blame Obama

As the price of oil and gasoline has gone up in recent months, one of the more vociferous charges being made by Republicans is that it is all Obama’s fault.  The allegation is that Obama’s regulatory policies have led to reductions in US oil and natural gas production, which have pushed up the price that people are paying at the pump.  The accusations were originally strongly pushed and developed into a campaign issue by the Murdoch owned Fox News channels, and were then picked up by the Republican presidential candidates.  For example, a posting on their web site from March 13 is titled “Romney Slams Obama Over Gas Prices”.  A report on the CBS News web site from March 15 is titled “Mitt Romney:  Obama to blame for high gas prices”, and reports on an interview with Fox News where Romney asserted that Obama is “absolutely” responsible for high gasoline prices.

These accusations reflect a good deal of confusion.  Oil prices are determined in global markets.  And the assertion that Obama’s regulatory prices have led to reductions in production of oil and natural gas in the US are simply untrue.  The facts on what is going on can be seen with a few simple graphs.  All the data are from the US Energy Information Agency of the US Department of Energy.

Crude oil production in the US as well as natural gas production have in fact risen since Obama took office.  Indeed, crude oil production had been declining until 2008, the last full year of the Bush administration, and then rose after Obama was inaugurated.  And to show that this is not simply an artifact of using annual totals, one can look at the monthly figures:

The charge that regulations imposed by Obama have cut oil and gas production in the US from what it was before is therefore simply false.  But I also would not argue that the increase in oil and gas production can simply be attributed to new measures under Obama.  Much more has also been going on.  For oil, probably most important has been the increase in global (and hence US) oil prices in recent years, which has induced increased drilling as well as increased production out of existing fields.  The question of why oil prices have risen will be discussed below.

For gas, probably most important has been the development and implementation of the new hydraulic fracturing (“fracking”) method of extracting gas from shale rock basins.  Thus gas production has been increasing since 2005.  By 2011, natural gas production in the US had risen to the highest it had ever been, exceeding the previous peak that had been set back in 1973.  Fracking is controversial due to the environmental impacts, and Republicans have charged that over-zealous federal regulators in the Obama administration have held it back.  But as the graph above shows, production of natural gas has increased sharply.

And since natural gas is a local product with only limited trade overseas (liquified natural gas, or LNG, can be shipped, but the conversion process is expensive), the increased supply in the US has driven down gas prices to the lowest levels since the start of the Bush administration:

With natural gas prices now at these relatively low levels, some of the new gas development projects are indeed being postponed or put on hold.  There is even discussion of major new projects to export US gas to overseas via LNG.  None of this is consistent with the accusation that the Obama administration regulations are holding back natural gas development.  And while Romney and others “slam” Obama for high oil prices, one does not hear praise for the lowest natural gas prices in years.  Note that I am not arguing that Obama should necessarily be so praised.  Indeed, with the environmental issues surrounding fracking, there is a good argument that such gas field development should be more tightly regulated to ensure environmental issues are being appropriately addressed.  I am just noting that Romney and others have been totally inconsistent.

Crude oil production has also increased in the US, as shown in the graphs above.  But the market for oil is different from that for natural gas, as oil can be readily shipped via tankers.  Hence the price of oil is determined in the global market, and one will not see US prices decline when US production increases.  US production of crude oil is a relatively small share of the global total.  There is therefore no reason for oil prices to fall when US oil production increases.  And prices have increased over the last decade:

Would it be fair to blame Bush for the increase in oil prices during his presidency, reaching a peak in 2008?  Not really.  The fundamental cause has been global growth, while global oil production has been essentially flat since 2004 or so:

Global oil production, global GDP, 2000 to 2011

With growth in global demand (especially in rapidly growing countries such as China, India, Brazil, and other emerging markets), and essentially flat oil production for over seven years now, it should not be a surprise that crude oil prices, and hence the price of gasoline at the pump, have risen.  And the fallback in oil prices in 2009 can be readily understood in the global downturn of that year, following the 2008 collapse in the US economy.  But as growth in global GDP recovered, so have oil prices.

There is of course much more that could be covered in the story on the oil and gas markets than what has been presented here.  The aim has not been to be comprehensive and detailed.  Rather, the purpose has simply been to show that the charges being made by Romney and others that Obama and over-zealous federal regulators are responsible for declining US oil and gas production, and hence the high price of gasoline at the pump, are simply false and indeed inconsistent with some easily checked facts.