BrianGarst.com

Despite public demand for increasing domestic oil production, the current White House has sent a clear signal that the U.S. will not be increasing production into the future, despite growing demand. While simply one of many factors impacting the global price of oil, it is a factor. But rather than acknowledge that the price of oil reflects the realities of supply and demand, including anticipated changes in the future, Obama is lashing out at anyone and everyone in an attempt to distract from his failed and misguided leadership on energy.

First, he pulled out that favorite boogeyman of the economically illiterate and blamed the speculators:

“It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand,” Obama said.

“The problem is … speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.”

Yes, they do “place bets,” but it doesn’t matter to speculators whether those bets are for prices to go up or go down, for the long-term or for the short-term, so long as they are right. It is, ultimately, the fundamentals of the market that move prices, not the speculators. It makes as much sense to blame the thermometer for how hot is as it does to blame speculators for the price of oil.

Speculators play an important role by adding additional information to the market. All prices serves as signals, and the more information they can convey, the better. Businesses that rely heavily on oil don’t simply want to know that there is enough supply now. They want to know if there will be enough supply 5, 10 or 20 years from now. If the answer is ‘no’, then they can start investing in alternatives now, when there is still time to adapt. By adding their information into the market system, speculators reduce price volatility. (More on that here)

What the President ignores is that the bets being made are not simply about whether or not instability will overtake production, though that’s certainly part of it. They are also looking at the growth of demand versus the growth of supply. And in so far as the former is out pacing the latter, and is expected to continue doing so, speculators will bring this fact to light by betting on prices continuing to rise. They are, simply put, reacting to reality, not shaping it. The same cannot be said of the President, whose policies are sending a clear signal that U.S. domestic production will be curtailed, or at least not allowed to grow fast enough to match future demand.

The President is also picking on another boogeyman, those dastardly oil companies:

“Four billion dollars of your money are going to these companies at a time when they’re making record profits and you’re paying near record prices at the pump,” the president said at a Nevada town hall. “It has to stop.”

It’s not altogether clear what the President thinks “has to stop.” If he means the fact that we’re paying record prices, it would certainly be nice if it did stop, but the President’s policies are having the opposite effect. Reducing oil production relative to demand, or adopting disruptive cap-and-trade regulations, will ensure that prices continue to rise.

But if he means record profits have to stop, he’s just being demagogic. We know he would be cheering “record profits” from GM, after all. Profits simply serve to encourage more production and investment in a sector, thus providing more of what the public has voted with their wallets that they want.

In either case, the President is clearly exploiting popular ignorances in hopes of distracting from his own economic failures. But he can blame speculators, oil companies, or anyone else all he wants. If prices continue to rise, and the economy continues to struggle, he will be very vulnerable in 2012.

Barack Obama gas prices speculation