Conservative Magazine calls out Gingrich’s “Despicable Gasoline Promise”
March 15, 2012
Reason magazine, (“Free Minds and Free Markets”) has published a piece severely critical of Newt Gingrich, and by extension, the FoxNews axis-of-error, on the gas price charade.
Former House Speaker and current Republican presidential hopeful Newt Gingrich has promised voters that gasoline will be $2.50 per gallon after he becomes president. In fact, Gingrich thinks he may even be able to get the price down to $1.20 per gallon. “His promise to go the moon is easier to achieve,” says Michael Lynch, president of the oil consultancy Strategic Energy and Economic Research. “We may see $2.50 per gallon gas again, but not because of anything that any president does.” Gingrich’s pitch is attractive to consumers who are confronting pump prices that average $3.83 per gallon and which are expected to go even higher later this year. Why doesn’t Gingrich promise free daily ice cream and cake for everybody while he’s at it?
While it is true that the Obama administration has ruled out drilling on vast areas of the federal estate, the number of oil and gas rigs operating in the U.S. has nonetheless increased markedly in recent years. Indeed, it is not surprising that as the price of petroleum soared so too did the number of drilling rigs. The oil and gas rig count has increased to more than 1,900, up from around 700 [PDF] in 2000. As an historical note, the total number of U.S. oil and gas rigs peaked at more the 4,500 [PDF] in 1981.
While Gingrich is right that domestic demand for oil is down, global demand is up. In addition, global crude prices start rising when global spare production capacity begins to drop below the threshold of 3 million barrels per day. Spare capacity prevents and cushions price shocks. During the 2008 price run-up to $147 per barrel, global spare oil production capacity fell to as low as 1 million barrels per day.
If Gingrich wants to lower oil prices, perhaps he should stop his saber-rattling against Iran. “If there’s an effective diplomatic outreach here that pushes back the prospect of a military confrontation with Tehran, we probably have something on order of $20-$30 a barrel geopolitical risk premium that could drop out of the oil price very dramatically,” wrote Tim Evans, energy analyst at Citi Futures Perspective in New York in the Financial Times. Oil consultant Lynch agreed. “The recent run up the price of oil is almost completely the result of concerns about losing Iranian oil or Iran attacking shipments in the Strait of Hormuz,” he says.
The coordinated boycott of Iranian oil being spearheaded by the United States is increasing uncertainty in the global oil market. An attack on Iran to stop its nuclear program would clearly disrupt oil supplies. There is not enough current spare global production capacity to make up for the loss of Iran’s 3.5 million daily barrels of oil. Lynch believes that as the Iranian situation drags on, crisis fatigue will set in among oil traders. He also points out that global production capacity is increasing. Thus Lynch predicts that the price of crude will likely drop back to $90 per barrel and the price of gasoline to around $3.25 per gallon by the end of the summer.
Lying to voters about his power to command the law of supply and demand is as close to despicable as anything I can imagine. Well, actually not. But it’s still pretty despicable.