Gas prices confound economic recovery

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

The subject of high gas prices, which are more than a dollar higher than one year ago, continues to confound economic recovery at many levels.

Just last week, May’s revenue report from Arkansas finance officials came with a stern warning that high fuel prices seem to be impacting consumer spending.

"…Sales taxes appear to be weakening in conjunction with higher fuel prices," said John Shelnutt, chief economist with the Arkansas Dept. of Finance and Administration.

Industry observers contend that market speculators have driven the price of oil and retail gas to its present high levels. Usually, supply and demand leads to volatility with pump prices.

Still, the latest report from the Energy Information Administration, indicates that while supplies remain sufficient, they have been disrupted by flooding that stalled traffic up and down the Mississippi River in May.

"Regular-grade retail gasoline price averaged about $3.96 per gallon during the first half of May as unexpected refinery outages and disruptions in distribution caused by the flooding of the Mississippi River and its tributaries temporarily counterbalanced the impact of lower crude oil prices," a report released Tuesday (June 7) stated.

"In recent weeks, gasoline prices have been falling, however, as the refinery situation has begun to recover. EIA expects the May average price of $3.91 per gallon will be the peak monthly average price this driving season," the report added.

EIA is holding to its prediction that throughout the summer drivers will see fuel prices about a dollar higher than they were this time last year.

ENTER THE CONGRESS
Politicians in Washington have a palette of options under consideration to do something about the high cost of gas. In many ways, it’s a broken record that has been replayed since the Eisenhower administration.

Lawmakers have floated ideas ranging from domestic drilling expansions to alternative fuel development to tax code reforms.

U.S. Rep. Steve Womack, R-Rogers, is part of a legislative group known as HEAT (House Energy Action Team), which has been tasked by House leadership to find energy policies aimed at American independence from foreign oil. Currently, the HEAT group is on a listening tour to develop ideas.

Womack’s district includes significant natural gas interests, a nuclear plant in Russellville and future production by Mitsubishi of wind-turbine components in the Fort Smith region. He’s also toured other parts of the country as part of his fact-gathering mission.

“The energy policy of this administration is not just flawed — it’s virtually non-existent," Womack said recently in regard to President Obama’s efforts. "It makes absolutely no sense to me that we continue to present barriers to energy producers who can be the source for tens of thousands of jobs and the ability to lower the burden of energy on families and business. To ignore American sources of energy is irresponsible.”

Lowering gas prices is a bipartisan issue in Washington and Arkansas.

U.S. Rep. Mike Ross, D-Prescott, has also pushed for a broad range of new energy strategies. He filed the American-Made Energy Act of 2011, which he claims could lower the long-term price of fuel.

Ross’ plan seeks to open more domestic federal properties to oil and gas production and use the royalty revenue to create a trust fund for investments in alternative and renewable energy projects.

“Fuel prices continue to skyrocket and working families cannot afford the high prices and instability they face each time they fill up. We must have an affordable, stable supply of energy,” said Ross. “Some say we need to drill more and others say we need to invest more in alternative energies, but my bill does both."

A TAXING SOLUTION?
While energy legislation and regulatory policy could effect changes to lower the price of fuel, there are some who hope that revisions to the tax code could lead to lower prices.

Earlier this year, Sens. Ron Wyden, D-Ore., and Dan Coats, R-Ind., filed the Bipartisan Tax Fairness & Simplification Act of 2011, an effort to reduce and simplify the federal tax code. Although the bill has notable corporate support, there are some tax reform groups that warn the measure could have the unintended consequence of raising fuel prices.

One of the bill’s provisions seeks to close a so-called tax loophole for U.S. oil and natural gas producers that allows companies that produce energy offshore to deduct the taxes they pay to foreign governments from their U.S. tax bill.

That complication could lead to a change in a multinational firm’s business approach, and in theory, cut back on current oil production — a move practically guaranteed to hike retail gas prices.

So with all of the confusion regarding Republican policies, Democratic policies and bipartisan policies, it begs the question: Can government exert any control over today’s high gas prices?

It would appear that the free market, financial markets and the status quo will continue to dictate the cost of filling up. When prices will come down is anybody’s guess.