RAY SUAREZ: The U.S. economy gave off new signs of momentum today, from retail sales to the Federal Reserve’s latest outlook. They provided reasons for optimism, even as rising gas prices gave cause for concern.
American shoppers are picking up the pace. Retail sales rose more than 1 percent in February, the most in five months. That news followed Friday’s report that employers added another 227,000 jobs in February. Consequently, the Federal Reserve said today the economy is expanding moderately.
But the Fed also warned that the spike in gas prices will feed inflation, at least temporarily. In fact, with gasoline up 30 cents a gallon in the past month, President Obama is feeling the political heat. He acknowledged as much yesterday in Washington.
PRESIDENT BARACK OBAMA: As long as gas prices are going up, people are going to feel like I’m not doing enough. And I understand that, because people get hurt when they’re going to that gas station and seeing those prices rise every day.
RAY SUAREZ: And two new public opinion surveys suggest the issue is hurting the president’s ratings. A New York Times-CBS poll found 47 percent of Americans now disapprove of how he’s handling the job, while just 41 percent approve. In a Washington Post-ABC poll, it was 50 percent disapproval to 46 percent approval.
Sensing an opening, the president’s Republican rivals have pounced. Mitt Romney lampooned Mr. Obama’s explanations today in Saint Louis.
MITT ROMNEY (R): He says something that — I think it was yesterday. He said the reason we have high gasoline prices is — and then he was seeking around. What could it be? What could it be?
RAY SUAREZ: And former House Speaker Newt Gingrich has promised he would push policies to bring gas prices down to $2.50 a gallon.
Mr. Obama derides such claims, saying anyone who makes them isn’t telling the truth. But public sentiment may be building for presidential action, and soon. In both the recent polls, 50 percent or more said it’s within the president’s power to do something about the price of gas.
We take a closer look now at what’s driving gas prices higher and what, if anything, the president can do to keep them in check.
Kenneth Green is a resident scholar on energy and the environment at the American Enterprise Institute, a conservative think tank. And Daniel Weiss is director of climate strategy at the Center for American Progress, a liberal policy group.
Simply, Kenneth Green, can the president, this president, any president, push down the price of gas?
KENNETH GREEN, American Enterprise Institute: Sure they can, but not as much as people might think.
About 75 percent of the price of gas is the world price of oil, reflects the world price of oil. But there’s a federal gas tax that can be changed. There are EPA requirements for specific fuel blends that can be changed. So it’s not quite true to say the president has no power, but it’s not as big as some people might like.
RAY SUAREZ: Daniel Weiss, can the president change the price of gas if he or she wants to?
DANIEL WEISS, Center for American Progress: Well, you know, when this happened in 2008, President George W. Bush said, I would wave a magic wand if I could to lower prices, but there’s no such thing.
And that’s true for this president as well. There is no magic wand to wave. Prices are high due to several factors. First, there’s some supply disruption in the Middle East, second, that there is a lack of — there’s an increased demand from Asia. And then, third, Wall Street speculators and oil companies are helping to bid up the price of oil on the markets, and that is driving up the prices.
Forbes magazine, no bastion of progressivism, said that spectators have driven up the price of oil about $25 a barrel.
RAY SUAREZ: Kenneth Green, you were shaking your head. Is there a shortage of supply of oil? Is it supply and demand that’s doing it?
KENNETH GREEN: Supply and demand is a part of it.
But, you know, the evil speculators, this is really funny, because somehow when the price goes from $3.50 to $4, it must be evil speculators, but when the price moves from $2 to $2.50, we don’t hear about speculators, or $2.50 to $2, we don’t hear about speculators.
We have magic, one-directional, sort of only high-end speculators that move in one direction.
RAY SUAREZ: Well, wait just a minute, though. The price of a barrel of oil has gone up smartly in the recent couple of weeks, but there’s no less oil entering the world marketplace than there used to be. So what is it?
KENNETH GREEN: There’s more uncertainty over whether or not the oil will make it through the world marketplace and to the refiners and whether the refiners will have the capacity to process it in time for the driving season.
There are many risk factors that are priced into the price of a barrel of oil that are intangible, but no less real.
RAY SUAREZ: Daniel Weiss, not speculation, but the price of uncertainty.
DANIEL WEISS: Well, first of all, there is evidence that Wall Street speculators, and not commercial end users like airlines and other people who actually have to use the oil, have driven up prices.
Generally speaking, there’s about one-third speculators making deals on oil and two-thirds of end users. Right now, it’s the exact opposite. McClatchy News Service found that, currently, Wall Street speculators make up almost two-thirds of all trades.
In addition, oil is set on a world market. We can’t really affect it that much. Right now, we’re producing the most oil we have produced in eight years. We’re using the least since the Clinton administration. Yet, prices are still high. We have seen oil rigs quintuple in the amount that we have got drilling for oil in the last few years, yet gas prices are still rising.
So, because oil is set on a world market, we don’t really have the ability to affect it very much. There are a couple things the president can do to lower prices quickly, not the things that were suggested earlier, but taking some of our reserve oil. Our reserves are almost full. Putting it on the marketplace, like we have done under other presidents, has tended to burst that speculative bubble, changed the expectation that the market is only going to be increasing in price, and therefore has led to a decline in prices every time we have used that trick, that tool.
RAY SUAREZ: You have suggested that a president can push down the price of oil. Should this be understood as something that a president does temporarily when the price of oil spikes just to smooth out abrupt changes in the price, or is oil something that could be cheaper, period?
KENNETH GREEN: Well, there’s all three of the above. It could be cheaper, period. So there could be permanent changes such as the boutique fuel requirement that can bring the price down in a lasting way.
We could increase production, which would have some effect in a lasting way. There are short-term changes that can be made, such as suspension of the federal gas tax, working with states to suspend the state gas taxes. Those can be temporary or long-lasting.
So there are things that can be done, both in the short term and the long term, to bring down gas prices. But the question of whether they should be done is a political calculation more than an economic or even environmental one.
RAY SUAREZ: But what about Daniel Weiss’ suggestion that we’re already getting a lot of oil in the United States, and since it is traded on a world market, if you develop a new field somewhere in the United States, you are not going to sell it at some special American price; you are going to sell it for what it’s selling on the spot markets in London, Brent crude and so on?
KENNETH GREEN: Yes and no.
Except, if that logic were true, then the president’s approval of the most recent pipeline to bring oil from Oklahoma to the Gulf Coast would make no mistake — would be — would make no sense. In fact, the president said we have oil that’s stranded in the middle of the country, where it’s commanding a lower price, and can command a higher price if it can get to markets.
So it’s not true to say that more production won’t temporarily give you lower-priced oil. It will. Canada oil right now is discounted because it’s hard for them to move it from Alberta out to any coast to get it to any other market. So we buy it for less than we would buy oil from Saudi Arabia or from tankers from abroad.
So it’s not really true to say you can’t drop the price by producing more. You can. It’s a matter of how long it will last and how far it will spread.
RAY SUAREZ: Well, we have talked about cause. Let’s talk a little bit about effect.
We began with positive economic numbers. Is this spike in the price of oil and oil products enough to mug a recovery that might be gaining some momentum?
DANIEL WEISS: There’s plenty of evidence that high oil prices reduce economic growth and that the higher oil prices go, the slower our economic growth is going to be. So that’s a real danger.
Second, high gasoline prices have a real impact on middle-class and low-income families. It has a real cost. That’s why if we can take some of our reserve oil — our reserves are full — put it on the market, about 30 million barrels, get our allies to do about the same, pop that speculative bubble, speculators won’t be able to count on the price going up, so they’ll change expectations, that will lower gasoline prices and provide some relief.
In addition, we need the regulatory agency that oversees oil trades to crack down on Wall Street speculators. They have a number of powers they can use under the Dodd-Frank law that was enacted a couple years ago, but they haven’t put them into effect. They need to do that to, again, put cops on the beat to make sure that people aren’t driving up the price just to make money.
RAY SUAREZ: Kenneth Green?
KENNETH GREEN: Well, we agree on the negative economic impact of high oil and gas prices. I think that’s absolutely true. The higher the prices, the worst the effect and the more aggressive they are.
We disagree on the idea of using the strategic oil reserve, petroleum reserve, because Saudi Arabia or any other country could crank down its production much more than we could ever ratchet it up, even in a tiny short term, with the Strategic Petroleum Reserve, which is quite small on a world supply basis.
So we agree on the problem. We don’t agree on the solution, I’m sure, which is no surprise.
RAY SUAREZ: Hey, but if you can get the Center for American Progress and AEI to agree on something, you have done a good day’s work.
KENNETH GREEN: Absolutely.
RAY SUAREZ: Gentlemen, thanks a lot.
KENNETH GREEN: Thank you.
DANIEL WEISS: Thank you.