Will cheaper gas nix energy reforms?

If prices keep dropping, the next president may find it harder to ease the US off foreign oil.

By Patrik Jonsson | Staff writer of The Christian Science Monitor

from the November 3, 2008 edition

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NORTH HAMPTON, N.H. - Jack MacDonald, a retired law enforcement officer, watched with bemusement – and some concern – as the Irving and Mobil gas stations on Route 1 in North Hampton, N.H., engaged in a bona fide price war this weekend.

All day Friday, their prices fell, both ending the day at $2.09 a gallon, not far off the national low of $1.93 at Casey's gas station in Altoona, Iowa, just outside Des Moines. Cars lined up seven deep at one pump. "It's a relief for us drivers," says Mr. MacDonald, a Democrat. "But it's suspicious that it's happening this close to Election Day. Who's controlling it, and why?"

Great questions. The factors behind the 50 percent price drop are myriad and complex, ranging from basic supply and demand to a renewed effort by oil-producing countries such as Saudi Arabia and Venezuela, perhaps in order to undercut calls by both presidential candidates for US energy independence within a decade.

Does the low cost of flying, transporting goods, and getting to the store mean that the biggest incentive for energy reform is evaporating?

"Falling gas prices takes a lot of starch out of the political rhetoric," says Austin-based energy journalist Robert Bryce, author of "Gusher of Lies."

The candidates are taking notice. Last week, Alaska Gov. Sarah Palin, the Republican vice-presidential candidate, warned consumers in a speech to not let cheaper gasoline get in the way of Republican plans to ease the country off foreign oil. There are already signs that consumers, who boosted public transportation ridership by 9 percent in the past year, are returning to their former driving habits as they get price relief at the pump.

"The only reason we're talking about electric cars is because of the high price of oil," says Jorge Pinón, a 30-year oil industry veteran and now a senior fellow at the Center for Hemispheric Policy at the University of Miami. "Without the high price of oil, the economic development costs are not there. What I think is going to happen is we're all going to go back to driving the way we used to drive."

Impact on candidates energy plans

The price buildup last spring happened this way: Anticipated demand added a $20 premium per barrel; tight summer supplies boosted price; a weak dollar added anther $17 per barrel. A new phenomenon – hedge fund speculation in the global oil markets – added another $21 premium, says Mr. Pinon.

Now, with US oil consumption down 8 percent in the last year and global markets reeling in the wake of the credit meltdown, hedgers can't find collateral and have bailed on the market. The dollar is stronger, and OPEC, after increasing output by half a million barrels a day in June, is promising cuts. Sunoco this week mothballed one refinery because no one was buying the gas.

Low gasoline prices combined with the economic crisis "may lull candidates into a ... lack of immediacy of the [energy] problem," says a consumer marketing expert at Ohio State University in Columbus. "I hope that wouldn't happen because the fundamental nature of the problem is still the same as it was three weeks ago."

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