When oil prices rise so does interest on Capitol Hill: Fuel for Thought

On the morning of July 24, NYMEX front month crude oil futures were trading just above $69/b, roughly $20/b higher than they were a year ago, and Jason Bordoff had to tell a US Senate committee why.

In testimony before the Senate Energy and Natural Resources Committee, Bordoff pointed to the collapse of Venezuela’s oil sector, uncertainty around the OPEC-led supply cut agreement, strong oil demand, the looming re-imposition of US sanctions on Iran and brewing trade wars.

For Bordoff, a former energy policy adviser to President Obama and founding director of Columbia University’s Center on Global Energy Policy, this was familiar territory.

Back in April 2016, Bordoff testified before the same committee about why oil prices had fallen below $49/b.

“While oil prices are low today, it is far from clear they will remain low,” Bordoff said at the time. “The oil industry has long known cycles of boom and bust, and there are many factors today that may combine to cause a price spike more quickly than anticipated.”

DON'T BLAME US

Congressional hearings on the cause of oil and, in turn, gasoline prices are a frequent occurrence on Capitol Hill. They are usually more frequent and spirited when prices are on their way up, but the overall message from lawmakers is fairly consistent: We’re not to blame.

Lawmakers typically are not interested in the evolving geopolitics, supply constraints or shifts in demand that cause oil price spikes or declines. Instead, they are typically looking for easy scapegoats and sound bites.

“We’re really just props, that’s all,” said one of the panelists at the July 24 Senate hearing. “Just there to be beat up.”

This is nothing new.

“You have to sense what you’re doing to us - we’re on the precipice here, about to fall into recession,” Senator Richard Durbin, an Illinois Democrat, lashed out at executives from ExxonMobil, ConocoPhillips, Shell, Chevron and BP during a May 2008 hearing.

“Does it trouble any one of you; the costs you’re imposing on families, on small businesses, on truckers?”

Oil prices were about $125/b at the time.

“Americans have been experiencing painful prices at the pump; whether you think so or not, they think so,” then-Senator Pete Domenici, a New Mexico Republican, said during a November 2005 hearing. “The oil companies owe the American people an explanation.”

Oil prices were about $58/b at the time.

SHALE TURNS THE TABLE

Now, however, with the domestic shale revolution credited with supporting so much of the US economy, it may be more difficult to blame oil executives for the country’s financial ruin than it once may have been.

And it is much less politically rewarding to verbally pummel an analyst in a Senate hearing room for simply explaining market fluctuations.

Still, lawmakers want make a show of action for their constituents, letting them know that they are aware of price movements and they are doing something about it. What they are doing, other than speaking at another hearing on prices, remains unclear.

It is also unclear if speaking out against volatile oil and gasoline prices will ultimately pay off with voters at the polls in November, according to G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College. But given the importance those prices have to voters, lawmakers need to try whatever they can.

“Rising gasoline prices are an incumbent’s nightmare,” Madonna said. “They’re going to try to do anything they can to make sure that nightmare isn’t realized.”

The US Energy Information Administration forecasts US gasoline prices to average $2.76/gallon this year, up 34 cents/gallon from 2017 and 61 cents/gallon from 2016. EIA forecasts WTI to average $65.95/b in 2018, up $15.16/b from 2017 and $22.62 from 2016.

While oil prices are forecast to drop and gasoline prices to stabilize in 2019, the expected price decline at the pump next year may matter little for lawmakers in November, when partisan control of the House and Senate appears to be at stake.

Lawmakers can talk about overall energy policy and debate the impact of regulation, but what ultimately matters most is the price at the pump in the days leading up to election day, Madonna said.

WHAT CAN A LAWMAKER DO?

While rising gas prices is vitally important to voters, there may be little, if anything, lawmakers can do to take the issue on, other than hold another hearing, Bordoff indicated in his testimony.

“Oil prices will always rise and fall,” he said. “For policymakers, the uncertainty about future oil prices means that current policy choices should be divorced from near-term oil price movements. Few policy actions can meaningfully affect oil prices in the near term in any case.”

So, is there any value in these hearings?

“It is always important and useful for elected officials to hear from experts when gasoline prices are rising, given how important they are both to the national economy, but also many peoples’ regular budgeting,” said Jamie Webster, an energy analyst at The Boston Consulting Group.

Prices have been on the rise recently for much different circumstances than five or ten years ago, Webster pointed out. It is important for lawmakers to understand why prices are moving during any particular era, he said.

“These hearings can also provide a cautionary warning to these lawmakers, lest they make hasty policy decisions that may, but most likely not, provide short-term relief at the cost of long-term repercussions,” Webster said.