Peaking gas prices may stymie GOP

Summer gas prices are not expected to come close to their highs from a year ago, which could hamper Republicans trying to fight a Democratic climate change bill with cries of “Drill, baby, drill!”

Private and government analysts expect prices to peak at around $2.40 per gallon, the average nationwide price over Memorial Day weekend.

{mosads}To put that into perspective, gas prices on the East Cost averaged about $3.95 per gallon heading into Memorial Day weekend 2008 before jumping above $4 later in the summer.

“I think the peak will probably be in the early summer,” said Michael Lynch, president of the Strategic Energy and Economic Research consulting firm in Massachusetts. He said prices have peaked near or just after Memorial Day for the past five or six years.

While oil has jumped from $38 per barrel in December to above $60, that’s less than half the peak ($147 per barrel) price from last summer.

“We don’t see it getting anywhere near $147,” said Sander Cohan, a fuels analyst at Energy Security Analysis.
Government reports back up those predictions. The Department of Energy forecasts gas prices will average $2.21 from April through September, down $1.60 per gallon from last summer.

Just a few weeks ago, House Republicans sounded hopeful that the summer driving season would bring higher gas prices that would play into their hands.

Rep. Adam Putnam (R-Fla.), the former House GOP conference chairman, noted oil prices were creeping up, and told The Hill “at some point gas prices become a very potent political weapon again.”

But the markets suggest “Drill, baby, drill” might resonate a bit less during this year’s climate change debate than it did in 2008, when people were spending more than $100 to fill the tank for August vacations. The GOP can still, of course, argue the Democratic plan to introduce a cap-and-trade system on carbon emissions will raise energy costs.

Analysts offer several reasons for why prices have bumped up as well as why they’re unlikely to reach 2008 levels.
Economic news suggesting the worst of the recession is over prompted investors to invest in energy, which caused oil prices to rise.

A couple recent fires at refineries also have driven up gas prices. Prices also generally rise around Memorial Day, the start of the summer driving and vacation season.

Still, the price of crude remains well under last summer’s highs and a continued global recession has greatly reduced demand. Actual consumption of fuel is still bearish, Cohan noted.

{mosads}Prices could rise again when the global economy improves. Cohan said the best-case scenario is for an economic turnaround in 2010, but that’s more likely in 2011.

Even then, he doesn’t expect gas prices to reach the highs of the summer of 2008, partly because by then there will be more refinery capacity, particularly in the U.S. and Asia.

That excess capacity will do much to lower prices, he said.

Forecasters remain somewhat flummoxed by last year’s high prices. Lynch blames a speculative bubble created by investors who expected never-ending high prices. Cohan said the high gas prices were created by the high crude oil price, which he thinks was partly due to speculation but also resulted from restricted supply.

Panama stuck at port

Worries about legislative battles on healthcare and climate change may be blocking action on the relatively uncontroversial Panama trade deal.

“My operating assumption is they’re afraid of the House caucus,” said William Reinsch, president of the National Foreign Trade Council. “They haven’t figured out that this is an issue where they can’t make everybody happy.”

House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) has told reporters that U.S. Trade Representative Ron Kirk does not think Congress is ready for the deal, and that there are many factors to the debate over the deal that are not directly related to the agreement itself.

{mosads}In testimony to the Senate Finance Committee last week, an Obama administration official blamed outstanding labor and tax issues for the delay. Business sources, however, are convinced the reason is political. They note a letter to Speaker Nancy Pelosi (D-Calif.) from 55 House Democrats opposing the deal as the real root of the problem.

These sources note that Panama and the U.S. already have resolved most labor issues, and that tax policies have not been included in past trade agreements.

The strong opposition from dozens of Democrats to the deal, however, could create ill feelings for the healthcare reform and climate change debates more important to Obama and congressional leaders.

Most think the House and Senate would approve the Panama deal if it came up for a vote. Labor does not oppose the Panama deal as vehemently as separate agreements negotiated with Colombia and South Korea, and powerful segments of the auto industry also oppose the Korea deal.

Still, the Panama deal would be approved over the objections of many Democrats, including Sen. Carl Levin (D-Mich.) and House Rules Committee Chairwoman Louise Slaughter (D-N.Y.). Both have raised complaints about Panama being a tax haven for U.S. businesses.

Reinsch thinks the administration must accept that it cannot win a number of votes on the Panama deal, and simply move on.

“Figure it out, send it up and do what you think is the right thing and then move on,” he advised.