Who Should Get Credit For Falling Gas Prices?

With gas prices falling to around $2.00 per gallon nationwide on average, President Obama was quick to tout savings as his personal achievement.

“America is the No. 1 producer of oil, No. 1 producer of gas. It’s helping to save drivers $1.10 a gallon at the pump over this time last year,” the president told a crowd last week in Detroit. Rep. Robert Cortez “Bobby” Scott (D-VA), one of Obama’s top supporters on energy policy, released a statement claiming it was “the president’s policies that have resulted in gas prices being reduced from $3.07 per gallon when he was sworn in in 2009 to $2.30 today.”

Unsurprisingly, Republicans in Congress quickly rebutted the repeated claim over the past few weeks. But who is responsible for falling gas prices, thus should have the credit for Americans’ savings?

There are several problems with the aforementioned claims by President Obama and Rep. Bobby Scott.

On Jan. 19, 2009, the day before Obama took the oath of office, the average price of regular gas nationwide was $1.85 per gallon, according to the U.S. Energy Information Administration. But, by April 2012, it hit $3.94 a gallon. Thus, despite the decrease in the price at the pump, the national average is actually still higher than when the president took office.

According to the AAA Daily Fuel Gauge Report, gas prices have fallen by roughly the price the president cited. However, the downward pressure on prices at the pump has been in the making for years, and is now coming to fruition despite artificial headwinds.

National Average Prices

Source: AAA Daily Fuel Gauge Report. Please note prices were updated as of 1/19/2015 3:45 AM ET.

“It’s rather disingenuous for the president to take credit for the decline in oil prices and gasoline prices and the increase in incomes generated by increasing production,” says American Enterprise Institute (AEI) economist Ben Zycher, formerly of UCLA and member of President Reagan’s President’s Council of Economic Advisers. “It’s somewhat amusing. He’s taking credit for an increase in production that has happened largely on private land and had nothing to do with federal government policies.”

Zycher’s claim is quite correct, as the only significant influence a U.S. president has on gas prices comes from the issuance of drilling permits on public lands. Yet, according to the federal Energy Information Administration, U.S. oil production during President Obama’s tenure has fallen by 6 percent.

Despite headwinds from the federal government, overall U.S. oil production is on the rise and supply far outweighs global demand. Production increases are largely due to two factors.

First, U.S. shale production through the process known as “fracking” for tight oil has pushed the U.S. to the top of the oil exporter list worldwide. Second, improved pipeline designs and reconstructions, which resulted in more divergence from a single platform, led to significant cost-savings for companies, who passed those savings off to the American consumer.

Together, these developments help to fuel a 61 percent increase in U.S. oil production on private lands.

So, again, whose responsible?

When Republicans rallied behind their “Drill, Baby Drill” domestic energy policy, Obama called it “a slogan, a gimmick, and a bumper sticker.”

“That’s not a strategy,” the president said.

Still, even though the president is clearly wrong, it doesn’t mean Republicans’ claims are entirely correct, either.

Republicans weren’t in full control of the energy sector of the economy, nor could they influence specific regulations that directly impact oil producers to the extend the executive branch is able. They could not issue federal permits to drill on more public land, and they certainly haven’t challenged new EPA rules regarding carbon emissions and greenhouse gases, many of which failed to even pass the Democratic-controlled Congress.

Though their efforts to persuade producers to increase supply coming from private lands is duly noted and well-documented — and, perhaps energy prices and energy policy would further benefit the American people if they were in charge for the last six years — the only credit we are completely comfortable attributing to Republicans comes post-2010 in various state legislatures and governors’ mansions.

The 2010 midterm elections gave the GOP control of more states than the party had enjoyed since the first half of the 20th century. There is little doubt the fracking boom in multiple states would not have been possible without Republican victories in 2010 — see New York’s outright ban, which could have gained traction in neighboring Pennsylvania — because Democratic candidates largely ran against the demonized process during the cycle.

That said, the majority of the credit belongs to U.S. oil companies and the free market, who together through competition and the pursuit of profit found new innovative methods, technologies and cost-saving measures that kept the process of supplying oil worthwhile in a less-than friendly environment.

With China, the largest buyer of U.S. oil, expected this week to report growth slowing to 7.2 percent from a year ago, global demand is likely to continue to drop. What this means for future gas prices will depend on several factors.

Record oil production in Iran and Iraq is expected to continue, but a drop in U.S. drilling rigs indicates a likely fall in future production on our side of the pond. Commerzbank analysts reported Monday that their latest figures from oilfield services company Baker Hughes showed the rig count at its lowest level since October 2013. If that holds, then global supply will decline, offering support for a floor on oil’s trading price per barrel.

“Shale oil production is likely to follow suit after a certain delay. This does nothing to change the considerable oversupply in the short term, however,” Commerzbank said.