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White House / ENERGY

Obama Caught in a Quandary Between Economic Growth and High Gasoline Prices

The  800-mile Trans-Alaska pipeline that feeds 950,000 barrels of oil a day to the West Coast snakes it way across the tundra north of Fairbanks, Alaska, in this undated file photo.(AP Photo/Al Grillo)

photo of Amy Harder
March 29, 2012

President Obama came remarkably close to saying high gasoline prices can be a good thing during remarks in the White House Rose Garden on Thursday morning, just before the Senate was to vote on a bill to repeal tax subsidies for Big Oil.

“As the economy is growing, the only time you start seeing lower gas prices is when the economy is doing badly,” Obama said. “That’s not the kind of pattern that we want to be in. We want the economy doing well, and people to be able to afford their energy costs.”

TODAY'S AVERAGE GAS PRICE

MAP: Where is gas over $4 a gallon?

What the president did not say, but seemed to imply, is that rising fuel prices often go hand-in-hand with a growing economy, as demand for energy increases. The result is a political conundrum for the White House: It desperately wants to declare the economy is on the upswing, but it also wants to avoid the wrath of voters angry that gasoline prices are hovering just under $4 a gallon.

 

The national average price for a gallon of gas was $3.92 on Thursday, according to AAA. That’s up more than 20 cents from a month ago.

Others in the administration are doing their best to help the president have it both ways on economic growth and energy costs.

Federal Reserve Chairman Ben Bernanke downplayed the impact of high gasoline prices in an interview with ABC News on Tuesday. “From the economy’s point of view, they are a moderate risk,” Bernanke said. He did say gas prices are a “hardship” and a “major problem” for drivers, but said that didn’t translate into a serious concern for the overall economy.

Some economists question whether the “only” time gas prices drop is when the economy goes sour. In fact, many factors influence gasoline prices, including unrest in the Middle East—the main reason Obama usually gives for high gas prices. Releasing oil from the nation’s Strategic Petroleum Reserve, which contains 727 million barrels, could also lower prices in the short term, and many economists say Obama is likely to tap the reserves at some point before the fall.  

But generally, economists agree the president was right to point out that the biggest driver in global oil markets -- and, thus, U.S. gasoline prices -- is the economy.

“He’s mostly right,” said Trevor Houser, an economist and partner at the Rhodium Group, a global-energy consulting firm. “In today’s oil market, in the short-term, the only way prices get a lot lower than they are today is if the global economy takes a big hit.”

That's not to say energy prices can't ever be low in a booming economy. “There was abundant oil supply in the '80s and '90s, which meant that prices stayed relatively low even during periods of robust economic growth,” Houser said.

The difference today is that even with oil production up, particularly in the United States (a point Obama has made countless times), demand for fuel is skyrocketing on a global level as a result of fast-growing economies such as China and India. Houser and other economists maintain that the growth in those countries could overshadow any change (for better or worse) in America’s economy.

But for a political speech ahead of a political messaging vote in Congress, the global economic perspective was probably not a vital point. Even if he had brought it up, Obama was going to lose anyway on the main point of his speech: Shortly afterward, the Senate voted 51-47 on the bill to repeal oil subsidies; the measure needed 60 votes to advance.

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