Punishing oil and gas producers makes no sense

About the only good to come from the global economic meltdown was the swift end to the jaw-dropping oil prices that had been causing so much pain at the pumps. Oil's price topped $140 per barrel last summer, bringing with it gasoline near $5 per gallon.

The crisis slashed global demand, and prices plummeted to $35 per barrel. A salutary effect of that drop was gasoline under $1.50 per gallon, helping to ease the economic burden on consumers in uncertain times.

Now there are signs that the global economy may be picking up. That's undeniably good news, but it is accompanied by the troubling specter of oil prices again moving northward. Oil prices have doubled since their low-water mark in January. Gasoline has inched steadily up to approach $3 per gallon as the summer driving season gets underway.

By the looks of President Obama's energy policies, however, it doesn't appear the chief executive is interested in acting to combat soaring pump prices.

A number of factors contributed to the steadily rising price of oil between 2004 and 2008. Among them were the weak U.S. dollar and the role of speculators. Most important was the booming global economy.

Ravenous appetites for oil from the U.S., China, and India narrowed supply and demand margins on the world market, helping to bid up prices. When a strong economy returns, so will the global thirst for oil at home and abroad.

The irony is that the U.S. is uniquely positioned to take steps that would cushion world markets and alleviate prices. We could add potentially several million extra barrels of oil each day to the world's supply by opening up for energy exploration those lands which laws and regulations have locked off for years.

At present the United States prohibits drilling in 85 percent of our coastal waters. Government estimates peg the amount of recoverable oil in those areas at more than 20 billion barrels, with similarly huge amounts of natural gas also available. There is thought to be at least another 10 billion barrels of recoverable oil off-limits in Alaska's remote Arctic National Wildlife Refuge.

The national mood last year swung firmly in favor of opening up those areas to drilling, but plans by Congress to act were shelved when it was forced to turn its attention to Wall Street's meltdown. As a candidate, Obama equivocated on offshore drilling.

As President, he has given little indication of support for expanding domestic energy production capabilities. His Interior Department throws up roadblocks to energy production on those federal lands where, theoretically, it currently is permitted.

The president's focus has seemed to be on punishing oil and gas producers, not protecting consumers from the shock of rising prices. The budget that Obama worked out with Congress socks energy companies with tens of billions of dollars in new levies, and specifically forbids them from claiming the manufacturing tax deduction available to every other American industry. Such policies will make it more expensive and more difficult to bring oil to market.

The global warming legislation making its way through Congress with Obama's blessing will similarly hurt consumers. The boondoggle bill gives emissions permits to electricity producers, but virtually none to the transportation fuel sector. The petroleum industry will have to pay for its permits, meaning cap-and-trade is, in the words of GSW Strategy Group analyst Geoffrey Styles, "a targeted tax on gasoline, diesel and jet fuel."

With luck, the U.S. and global economy gets back on track sooner rather than later. If that happens, however, why would we choose to kneecap it with another bout of sky-high energy prices?

Max Schulz is a senior fellow at the Manhattan Institute.