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It has always been the habit of the party that doesn't occupy the White House to blame various ills on the party that does. Especially in the past few years when it has come to gas prices, the party-in-waiting has blamed the POTUS for "pain at the pump." We're not taking sides here – Republicans are doing it to Obama now, just like Democrats did it to Bush. Unfortunately for their arguments, the President has about as much control over the price of oil as he does over the price of bread; if you saw what it took to get either to the retail outlet, the enormity of intricacies would make it plain.

Case in point: In 2008, the U.S. began exporting oil products like gas and diesel for the first time in decades and, according to a report in Fortune, even though the U.S. is producing more oil than any time in the past eight years, the price of gas is still high. Part of the issue is the bottleneck in transportation: Two pipelines carry the black gold to the nation's major clearinghouse for oil in Cushing, Oklahoma, where the president can be seen in the image above, and there aren't enough pipelines to get it from there to refiners. One analyst called Cushing "the 'Roach Motel' for crude" because it could get in but not really get out.

On top of this, domestic gas demand has dropped. That has added to the glut of oil awaiting shipment, which drove down the price of our own benchmark oil, West Texas Intermediate (WTI), by double digits compared to its European counterpart, Brent crude. Obviously, oil-market traders – whose contracts set the price for oil – couldn't let that continue, so they essentially walked away from WTI, a move that had the effect of setting the benchmark price at the higher Brent crude price. Put simply, they asked "Why sell a cheap commodity when I can sell the same commodity for more money?" And as we know, more expensive oil means more expensive gasoline.

That's the gist, but naturally this is a huge simplification. For instance, there are more than 100 kinds of oil traded on the markets and we've only mentioned two, and middlemen between drillers and the gas station can number in the dozens. But the point is that when you want to know what's up with gas prices, don't look at toward the White House – no matter who is in office – look at traders who will work to get the best prices they can, at refiners who can idle facilities to support prices and at the minutiae of production. The U.S. doesn't even own the oil drilled here – companies purchase drilling rights from the government and the oil they find belongs to them; they can sell it to anyone anywhere. Once they get it out of Cushing, that is. And if you think the much disputed Keystone Pipeline might help, some analysts believe it will make the price of oil rise.


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  • 33 Comments
      PR
      • 2 Years Ago
      When you look at decades worth of graphs of world gas prices compared to US gas prices, you quickly see that all price patterns are global. We all rise and fall together around the whole world. Our tie to global gas prices has remained rock solid no matter what percent of our own crude oil we drill. The US cannot get off this global roller-coaster through any kind of unilateral action. The best we can do is play with a dozen or so percentage points at the margins. The only way to get completely off this global roller-coaster is to stop using oil. Even if we manage to double our drilling, that just puts us back where we were a few decades ago. And we were still on the exact same global roller-coaster even way back then. Drilling more oil, exporting more gas, etc can only have minimal impact at the margins. When the margins get too big, somebody will always step in to exploit that margin for profit, which will always re-balance everything until that margin starts shrinking again.
      Sasparilla Fizz
      • 2 Years Ago
      Its often overlooked that the price of gasoline is also set at the world level as well (gasoline can be exported from the U.S. with far less restrictions than oil). Doesn't matter how much oil you produce in the U.S., the price is set at the world level - with worldwide demand increasing by a huge amount over the last decade but worldwide production not increasing much over that same timer period you get prices that go up and are expected to continue going up long term (with dips as recessions diminish demand along the way). As for the glut of oil at Cushing OK, within days after the Keystone XL pipeline extension was delayed a Canadian Oil company bought an existing US pipeline that ran from the Gulf to Cushing OK (originally bringing Texas crude up for refining and distribution to the Midwest) and reversed the flow so that oil is now going south (where it can be refined and exported for higher prices than what West Texas Intermediate is) - overall this and the XL pipeline will have the effect of getting rid of the excess supply of Canadian oil in the U.S. midwest and bringing the price the refiners in the midwest pay for the oil closer to the world standard of Brent Crude (~$10 - $20 more a barrel). The push for the XL pipeline was all about Canada getting West Texas Intermediate prices up much closer to Brent Crude prices (and hence Canada getting ~$10 - $20 more a barrel for their tar sands oil). Alot of money wants that to happen...won't benefit the U.S. consumer a bit.
      Spec
      • 2 Years Ago
      This is not even a rational question. We are a net importer of crude oil. The fact that we export refined oil product made from imported crude oil is meaningless in terms of price. All that tells you is the people who whine about the lack of refineries because tree-huggers were dead wrong.
        DaveMart
        • 2 Years Ago
        @Spec
        Yeah. I was too tired to argue, but you are absolutely right. The ones who were missing out from the lower price of WTI were the mostly Canadian producers, who got a lower price for their oil. That was not going to go on for ever, as all they would have had to do was say to the Chinese that they could build the infrastructure to export it to them instead and Canada would be several billion a year better off. Most of that gap is now closed though. Because the US refines the oil gives them some gain, but mostly Canadian oil doesn't become mysteriously 'their' oil. The US imports substantial amounts of it's crude, and is a net importer, not exporter. The fact that they have a positive balance in refined products is neither here nor there, as you can't refine it if you haven't got it.
      Dave R
      • 2 Years Ago
      As usual, ABG commenters provide more insight on the actual situation than ABG staff. The crazy that that most people don't realize is that US production of oil has very little to do with the price of gas at the pump. Even if we were a country that produced enough oil to satisfy our own demand and have net exports - gasoline prices would be the same because oil is a commodity that is sold on the global market to the top bidder. As long as oil continues to be harder to pull out of the ground, expect oil and it's refined product prices to remain high. Do not expect oil prices to go significantly below $100/barrel - if it does Saudi Arabia will quickly pull production to boost the price - after all, they need $100/barrel oil to support their own country. There's a good reason Saudi Arabia is planning on investing $100 billion into solar generation there - with a huge amount of their electricity generator by diesel burning power plants - solar power allows them to burn less oil locally and export oil at a very tidy profit.
        Spec
        • 2 Years Ago
        @Dave R
        "Even if we were a country that produced enough oil to satisfy our own demand and have net exports - gasoline prices would be the same because oil is a commodity that is sold on the global market to the top bidder." Well . . . if you oil production is nationalized (like most countries) and you have excess, then you can subsidize the local gasoline prices like they do in Saudi Arabia, Kuwait, Venezuela, etc. However, that is HORRIBLE policy. That is basically throwing away your crown jewels for waste. They basically do it it as a way for buying complacency from their people. But eventually they'll have to change the policy and the fireworks will begin.
          Ernie Dunbar
          • 2 Years Ago
          @Spec
          Yes, because Americans just *love* socialism, now don't they? I suppose it might just be possible that a promise to drop the price of gas to $0.50 a gallon would rocket any socialist straight into the White House, but to be honest, that possibility is still remote, even under those strange circumstances.
        DaveMart
        • 2 Years Ago
        @Dave R
        I don't blame ABG staff for this one. It is part of the Forbes disinformation service in pursuit of their political agenda to try to show that petrol prices in the US are unnecessarily high, so facts are being manipulated to suit. It's part of the drill, bay, drill meme.
          Dave R
          • 2 Years Ago
          @DaveMart
          You're letting them off way too easy. If your job is to write articles for a "Green" website - at the very least as a journalist you should do some research and form your own opinions about the subject instead of regurgitating what the "news" outlet of the day says.
          DaveMart
          • 2 Years Ago
          @DaveMart
          I don't expect them to be fully conversant with the oil market, and it seems OK to me for them to pass on Forbes stuff, no matter how wrong they are. Half way informed commentary just on green cars here is my dream, but a very distant one.
          2 Wheeled Menace
          • 2 Years Ago
          @DaveMart
          ^-- you win. Now ask yourself why a green news site is parroting this? ABG won the green car news award this year, we deserve better IMHO.
      brotherkenny4
      • 2 Years Ago
      The word is fungible. Even Sara Palin knows what that means. Anyway, the price of gas is not that bad right now, and likely not to get worse real fast. It will rise over time because of production cost increases. However, alternatives and lower consumption when prices spike will limit the rapidity with which it rises. I can say it's not so bad because there are still huge amounts of SUVs being purchased. Personally, I believe much above $4 per gallon and you incentivize alternatives which will only become competitive when large capital investments are made in production, and the volume of product output reaches a critical level. Biofuels, cellulosic ethanol, EVs (batteries), and even fisher-tropsch. I doubt that even the crazy Ayatollahs will want the price to get high enough to ruin the whole market. Oh, that "pain at the pump" thing, self inflicted or imaginary or both.
      Smurf
      • 2 Years Ago
      The price of gas is high "because" we are exporting gasoline, where it can be sold at a higher price. Exporting gasoline also ensures we don't have excess gasoline inventories in the US that would drive the price down....
        Matt Fulkerson
        • 2 Years Ago
        @Smurf
        Smurf, if the refiners could not export their product, would they continue to import all of that expensive extra oil, only to sell the excess gasoline on the domestic market at a loss? Of course not.
          Smurf
          • 2 Years Ago
          @Matt Fulkerson
          Matt, What do you mean IF the refiners cannot export their product? Are you thinking we would pass a law outlawing the exporting of gasoline? Of course not. The refiners can ALWAYS export their product at a higher price and there is never a lack of demand. Why do you think oil companies want the Keystone pipeline so much? To give them the opportunity to export more gasoline and open up new markets.
        Spec
        • 2 Years Ago
        @Smurf
        No. Just no. OK . . . what would you do to remedy this situation? Ban exportation of refined oil? All that would happen then is we would import less oil. But that would do nothing to change the price of gas here.
          Dave R
          • 2 Years Ago
          @Spec
          I think that you and Smurf are in violent agreement - I don't think that Smurf is suggesting that we limit gasoline exports to drive gasoline prices down... If inventories became a problem, refineries would simply start refining less - after all - at a minimum they have to sell gasoline they refine for at least what the oil gasoline is refined from costs if they want to stay in business. Exporting gasoline and keeping refineries busy is good since that means more profits for the refineries.
          Smurf
          • 2 Years Ago
          @Spec
          Spec, The oil companies will always balance the amount of gasoline that is refined and exported so that they do not have too large of a gasoline inventory. That is just good business sense. No regulation will change that. There is only one remedy..... "Significantly" reduce gasoline consumption so that global oil demand is lower than global oil production. THAT will drive down the global price of oil which will drive down the price of gasoline.
      Ernie Dunbar
      • 2 Years Ago
      Nevermind that when they say "oil products" that doesn't mean *just* gasoline and diesel. It means plastic and fertilizer and pharmaceuticals and 3,000 other things that get made out of oil.
      Ashton
      • 2 Years Ago
      well written. I got tired of the Dems blamming Bush for the high gas prices, and I'm also tired of the Republicans blamming Oboma. Oil's price is chosen by OPEC,, they set the price for the whole world (the only reason it costs more in Europe the here in the US is because their government slap a lot of tax on it). I think the movie War Games said it best "The only winning move, is not to play". *Model S fan*
        Spec
        • 2 Years Ago
        @Ashton
        OPEC really does not have much power these days. They really cannot push prices down as they are pretty much all pumping flat out except Saudi Arabia. In theory they could push prices up by cutting back supply but they are too undisciplined for that and they are all desperate for money in order to placate their people and prevent additional uprisings. So the oil markets set the price and OPEC can try to move the price by increasing/decreasing supply but as I indicated above, they lack the power & discipline to do it. They are a shell of what they once were. There are much bigger factors such as China's demand growth, the amount of taxes Europe puts on oil, sanctions on Iran, and the current USA production growth that overwhelm OPEC's power.
      EZEE
      • 2 Years Ago
      Because it is a commodity. Is that enough, or should I continue?
        Spec
        • 2 Years Ago
        @EZEE
        That alone is enough. But it is really annoying to keep hearing this myth of "the USA now exports oil". We don't net export oil. We are massive importers of crude oil. There is just a net export of REFINED products only. Basically, we have excess refining capacity so we refine oil and send it to South & Central America. It really has nothing to do with the price of oil at all.
          EZEE
          • 2 Years Ago
          @Spec
          :D Wouldn't that make a great headline? Then story? 'because its a commodity.' We have been exporting diesel to Spain for years and years - simply because as a commodity, and the fact that we produce more than we use, and, since it is more expensive in Europe, they can make money, regardless of price fluctuations (wow that was a sentence). Actually this something your side can use, and NOT in the arena of evil child feeding to honey badger rhetoric. Even with additional drilling, china and India will drive up prices, and we will export excess at market prices. Now, I may not like $5 gas, but if it will happen, it will happen.
      2 Wheeled Menace
      • 2 Years Ago
      Pretty simple. We import oil from Canada, refine it, and ship it out. That doesn't mean we have found more useable oil and are on our way to energy independence. it means that we have refineries. Why do we ship it out? probably because of various tariffs, regulations, and trade agreements that make it more profitable to ship it out than actually sell it here. Hmm, at 3.50-4.00 a gallon, are prices really that high? Maybe if they are too high for you, you should consider buying a mode of transportation that uses less of it.
        Spec
        • 2 Years Ago
        @2 Wheeled Menace
        And we in fact have found more useable oil and domestic production has sharply increased. However, oil is global market. There have been drops in production elsewhere (UK, Yemen, Egypt, Venezuela, etc.) and demand increases elsewhere (China, India, developing nations) such that the net balance has been pretty much flat. People in the USA often seem to forget their is a world outside of the USA . . . it is the global situation that determines oil prices, not just what happens locally.
      Eideard
      • 2 Years Ago
      I won't waste time seeing if commenters picked it up; but, "Autoblog staff" onviously don't know better. Yes, we're now a leading exporter of oil products. So, don't go repeating the Republican hogwash about being unable to get crude to refineries. What is exported is the product of refineries. We don't export crude. It's agin the law, boy.
      Ford Future
      • 2 Years Ago
      The President of Exxon determines the company's gas price. Using West Texas Crude, or Brent Crude prices on the spot market is just an economic convenience, to peg gas prices. Had the CEO of Exxon determined that he was losing market share in the US, he could easily drop the price of gas to, go on a price war, to pick up more market share. The SEC is restricted from prosecuting off-shore monopoly price manipulation meetings by the oil industry, or any industry. Conveniently.
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