Rising Fuel Prices

As recent as early October, the price of oil was below $80 a barrel. On February 22, it was just above $106. That's a nearly 40 percent increase in four-plus months.

At the gas pump, the national average price of a gallon of gas, according to Energy Information Administration data, came in at $3.65 on February 20. That was up by 30 cents a gallon versus early January.

Obviously, two big issues regarding prices at the gas pump are the price of crude oil and taxes. In fact, API's Chief Economist John Felmy noted on February 22 that 84 percent of the price of gasoline are accounted for by crude oil and taxes.

Interestingly, policymakers can help on both fronts. First, and most obvious, is the tax issue. Quite simply, rolling back taxes on the energy sector will reduce costs. Consider that the average federal and state tax on a gallon of gasoline is 48.8 cents. For good measure, the President and various members of Congress need to stop the push for increased taxes on energy firms, as that will only reduce investment and production.

As for the price of crude oil, there clearly is an Iran fear premium at work. That is, the threat of the Iranian nuclear program and the potential reactions, including possible war with Israel, disruption of oil supplies as some 17 million barrels flow through the Strait of Hormuz daily, and how the U.S. might react, have pushed up oil prices. If Israel does take action, all bets are off as to how high oil might jump.

Beyond decisions made in terms of national security and foreign policy, policymakers can make a difference by removing obstacles and prohibitions on domestic energy production. A good place to start would be with H.R. 3408, which passed the House of Representatives by a bipartisan vote of 237-187 on February 16. As summed up in a House press release, the legislation would "require the Administration to move forward with new offshore energy production in areas containing the most oil and natural gas resources - including the Atlantic Coast, Pacific Coast and portions of the Eastern Gulf of Mexico;" open a small percentage of ANWR to oil and natural gas development; "encourage the development of 1.5 trillion barrels of oil shale in the Rocky Mountain West, and approve the Keystone XL pipeline."

Natural Resources Committee Chairman Doc Hastings offered a challenge: "As gasoline prices continue to rise to almost double what they were when President Obama took office and Iran continues to strain foreign oil supply, Americans are demanding action. Republicans are responding with this action plan to create jobs and grow the economy through new American energy production. The only question is, will the Democrat controlled Senate and President Obama stand in the way or become part of the solution?"

In the end, of course, more energy production, whether in the U.S. or any other nation, is positive for prices and the energy costs faced by U.S. consumers and businesses.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.