Promising $2.50 Gasoline: Pure Demagoguery As Chinese and Indian Demand Push Up Oil Price

Newt Gingrich says just make him President, and he will deliver $2.50 gasoline.  He further blames President Obama for the current national average gasoline price of about $3.84.

Judging by his poor showing in Louisiana, where he finished third with 16% of the vote, Gingrich's piece of demagoguery is not enough to rebirth a third time his now dead campaign. The only positive thing to say about Gingrich's $2.50 per gallon promise is that he did not promise gasoline prices below $2, as Michelle Bachmann did.

Thank you to the Republican primary voters for not rewarding the Gingrich or Bachmann nonsense.

As the previous posts show, US gasoline demand has been falling for 52 weeks straight.  US oil consumption peaked in 2007. And most remarkably, US oil production has ended a 38-year decline and is up 15% since 2008. Despite declining oil and gasoline demand and rising US oil production, US gasoline prices are rising and may average nationally more than $4 in the weeks ahead.

Fundamentally, declines in US oil consumption and increases in US oil production are being swamped by massive, rising demand for oil by China and India.  Powered upward by Chinese and Indian demand, world oil consumption increases each and every year and now stands at 89 million barrels per day, after being at 82 million barrels per day a few years ago.

The result of the rising oil demand is to reset global oil prices, with a floor at no lower than $80 per barrel. A normal trading range has become $90 to $125 and that means gasoline prices of $3 to $4 or more in the US.  With rising global demand every year and war risks threatening the supply of oil, the probabilities are stacked in favor of still higher global oil prices in the coming years.

Indeed, the only way to push gasoline prices back to below $2 would be a global depression and that is exactly why gasoline prices were below $2 in January 2009.  The world oil markets collapsed, creating for a short period even $30 per barrel oil, as oil traders believed a calamitous depression was likely, given that US GDP dropped 8% in the fourth quarter of 2008 and 6% in the first quarter of 2009.

Given these oil facts of life, what should US policy be?

Level with citizens that global oil is expensive. Stop the $2.50 demagoguery.  Then enact policies to use less oil, and we can do so in two ways.

We can increase the use of oil substitutes like natural gas, biofuels, and electricity for transportation.  Natural gas and electricity are cheaper and cleaner power than oil. We can also burn the oil we do use more efficiently, thereby using less or making our economy less oil-intensive.

Reducing oil consumption remains vital for our national security, national economy, and our individual pocket books.