Gas Economics: Why Prices Are Rising & Drilling Won't Help
POSTED: Thursday, March 22, 2012 - 9:37pm
UPDATED: Monday, March 26, 2012 - 10:48am
EL PASO - You're paying more at the pump nearly every time you gas up. So why are prices rising if the President says we're drilling more and what can really be done about it?
The President tried to level with folks in Southern New Mexico on Wednesday by saying drilling more will not ease the pain at the pump.
"Even if we produce more, the fact of the matter is we use 20-percent of the world's oil, and even if we drilled every square inch of this country we'd still only have 2 or 3-percent of the world's oil reserves," President Obama stated.
Economist Tom Fullerton says the President is right.
"There's really not that much excess capacity that can be brought online within the United States as a whole to be able to cause a dent in the overall global oil prices," he said.
So why are prices rising right now? Fullerton explained to us a major oil supplier is the Middle East, and the oil comes through Iran. With growing tensions, Iran could stop our supply, and prices would soar. Anticipating that, investors are buying up oil to profit off our dependency on it, and that's already driving prices higher. The President acknowledged that in his speech.
"If we do nothing every time there is instability in the Middle East we will feel it at the pump, even if we're pumping here non-stop in New Mexico and all across the country," President Obama said.
Fullerton says no politician will tell you this, but they know the key to better energy efficiency in the U.S. is to force prices up even more with taxes. It would force consumers to be more fuel efficient, and it could help balance the federal budget.
"Those two things aren't always linked together, but the last time they were linked together it really helped solve two problems with one policy mechanism," Fullerton said.
He says the Clinton administration was the last to raise oil taxes, and it helped them balance the federal budget. It also got the ball rolling on alternative energy production.
Either way, it doesn't look like gas prices are coming down anytime soon.