Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Politicians are constantly promising us the moon and the stars — more jobs, higher benefits, lower taxes. Now our leaders are vowing to lessen the pain at the pump.
Every player in the political arena, including President Obama and his GOP challengers, has a plan to bring down oil prices. A vote for them means we’ll be paying less for gasoline thanks to a program of (take your pick): tax code reforms, more drilling, a new pipeline, less reliance on Middle East oil, and/or a release from the government’s Strategic Petroleum Reserve (SPR). These are all simplistic and flawed ideas.
Let’s start with the silliest “solution,” releasing oil from the SPR. The U.S. burns about 20 million barrels of oil per day. The SPR holds about 700 million barrels, or about a 35-day supply. Opening the SPR could briefly lower the price of oil by spiking supply levels, but then we’d be right back to a global marketplace with no cushion to fall back on.
More drilling? Love it. But sticking a few more drills in the ocean or Alaska won’t move the needle on global supply more than a fraction of a percent.
What about less reliance on Middle Eastern oil? Guess what – we’ve been headed that way for years, and we’ve made great progress. About 82 percent of our oil supply currently comes from North America – 55 percent from the good ol’ USA. Just about 11 percent comes from the Middle East.
Of course, given its role as a major world supplier, the Middle East is influential in setting global oil prices, and we do remain vulnerable to its whims and turmoil.
Bottom line: The price of oil is set by a law far beyond the influence of any lawmaker – the law of supply and demand of almost 7 billion people. Oil prices are rising because global demand is rising. Americans are no longer the only people driving cars, running huge farms or building miles of asphalt roads. China’s consumption has soared in recent years to more than 10 million barrels per day, and the burgeoning economies of Brazil, Russia, and India gulp up oil on a similar glide path.
So regardless of the huffing and puffing in Washington (and on the campaign trail), pumping gas is going to feel like giving blood for the foreseeable future…at least until oil becomes too expensive to bear, and we decide to use less. The price will then self-correct. In the meantime, you don’t have to sit there and be a victim. You can profit from rising oil prices by owning stock in companies that profit from those increases. Get started by exploring something like the S&P Energy Select Sector ETF.
Do you think any politician has the ability to bring down gas prices?
– By Wes Moss, for Atlanta Bargain Hunter