Gas Prices, Terror & Election '04

GENERIC Senator John Kerry and President George Bush over Gas Station Prices
By David Paul Kuhn, Chief Political Writer

While Democrats' fault President Bush for the soaring price of gasoline, it is beyond the White House reach to directly influence prices in the short term. Though some experts assert Mr. Bush's long-term energy policy has contributed to the high price of oil.

Yet those same energy industry experts say there is little President Bush could do to promptly decrease how much Americans' pay at the pump. Oil companies make more money when the barrel price is high. But soaring oil prices do not directly cause high prices for gasoline.

"The cost of gasoline plays to several different factors," said oil expert Ed Morse, executive adviser at the New York-based oil trading company Hetco and the former editor of the mainstay oil industry trade publication Petroleum Intelligence Weekly.

"One factor [in the price of gasoline] is the supply and demand of gasoline and current inventories of gasoline," he explained. "And another factor is the cost of crude oil. So the cost of crude oil is only indirectly related to the price of gasoline."

Experts point out that despite the political spin, in the short term, neither a Congressional energy bill nor presidential pressure on the Middle East oil cartel, could lower the near-record gas prices seen across the United States.

The average price of gasoline at the pump has soared to over $2 a gallon. In spite of any president's inability to directly lower prices through an executive decision, the Bush administration has shown an aversion to policy that may help in the long term.

While all presidents' face an inability to take specific policy positions that are certain to lower gas prices, the Bush-Cheney campaign knows that voters may hold Mr. Bush accountable for the high prices. In the Democrats view, voters should.

This week, Congressional Democrats urged the president to release 60 million barrels of oil from the Strategic Petroleum Reserves (SPR).

Sen. John Kerry reiterated what has become a Democratic position, one agreed on by some in the oil industry.

"The smart move," Kerry said Tuesday in Portland, would be to "divert the raw crude oil" from the federal reserves to the market for a temporary period until "we get the supplies up." Kerry added that if some reserves were released it "lowers the prices, particularly in the summertime."

Morse and other oil experts say there is an argument to be made that the release of some of the oil reserves -- or at the very least a decision to stop filling them -- could have the "tenuous" affect of lowering gas prices.

But the Bush administration will not budge on its almost categorical policy to not release some of the oil reserves unless there is a emergency. Energy Secretary Spencer Abraham restated the position Tuesday.

The Bush campaign policy has been to ship 170,000 barrels a day to reserves in Louisiana until it reaches its capacity of 700 million barrels. Currently, there are over 660 million barrels in the reserve.

Only an emergency -- and not price increases, the Bush administration says -- will cause Mr. Bush to release some of the oil reserves until capacity is reached.

"The fundamental mistake that the Bush administration has made is to say that it would never use the SPR for reasons other than a national emergency, undefined," Morse said. He argues this policy does affect, but not cause, the high gas prices.

"The government created a lack of ambiguity, instead of ambiguity, and that is certainly responsible for some speculative movement above $35," Morse said. "To some degree you could say that $41 may not be justified. And if the government had not made it cheap to speculate, then the price of crude might well be lower."

The Bush administration made "it cheap to speculate" for commodities traders by leaving no ambiguity to their policy that as oil prices increase they would not release reserves.

Since Saudi Arabia's unspoken policy has essentially been that it will not allow prices to go below $25 a barrel, commodities speculators have more to gain by betting on high oil futures. This is because President Bush has shown no inclination to release reserves, contradicting what had been the de facto U.S. policy. Presidents in the past have released some reserves, or threatened to do so, when the price of oil began to rise above $35 a barrel.

"Anything you can do to stabilize crude prices is going to have an impact," said William Greehey, the chairman and chief executive of the oil refiner Valero Energy Corp.

Greehey argues that the price of crude would decrease "if President Bush said I'm not going to inject crude into the reserves." That may also cause commodities traders to unload some of their highly priced oil futures, Greehey added, because "we have a fat market."

Whereas Kerry, the presumptive Democratic nominee, has criticized Mr. Bush for not putting enough pressure on Saudi Arabia, such pressure would not immediately affect the market. It takes about 45 days for Saudi oil to reach American refiners. Alternatively, it takes about five days for Venezuelan oil to reach U.S. oil refineries.

The United States relies, more or less equally, upon four countries for oil: Canada, Mexico, Venezuela and Saudi Arabia.

"When [the Venezuelan oil industry] went on strike in December 2002, we lost not only crude oil into the U.S. but we lost gasoline into the U.S. and the imbalance created by that could have been almost completely made up had the government released SPR oil at that time," Morse said. "[The Bush administration] chose not to for mind boggling stupid reasons."

He added that he had "concrete knowledge" that "every single one of the president's advisers argued in favor of the release of SPR oil and the one who didn't was the vice president." Morse alleges that Vice President Dick Cheney "convinced the president not to do it."

Morse further said that "the major argument" of the vice president not to release reserves during the 2002 Venezuelan oil crisis was that the United States "may need the SPR when we deal with Iraq and the Iraqi production get shut in."

Additionally, Morse said that the Bush administration didn't release any reserves because it wanted to "see if we can get a commitment from Saudi Arabia to provide oil... but the Saudis really didn't raise production until the middle of January 2003, 45 days after the general strike in Venezuela."

Morse said this was the most extreme example of Mr. Bush's policy to not release reserves. He, and experts like him, faulted President Bush for a long-term policy that at best, does not help lower gasoline prices. But he emphasized that there is "very little" Mr. Bush could do to affect prices in the coming months.

A president's inability to lower gasoline prices in the near future has not stopped prices at the pump from becoming an election issue. From former presidents Richard Nixon and Jimmy Carter, to Kerry in 2004, gasoline remains at the top of the domestic debate when Americans' wallets are being emptied by high gas prices.

"[Candidates] try to use it obviously in a political way by saying, 'you elect me and I will solve this problem,'" said Lee Edwards, a presidential historian at The Heritage Foundation. "But I think it is rather disingenuous because it has become so complicated in a global economy that no one president, and no one country, can solve it."
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