Magic wand

At the presidents new conference yesterday, when asked how he would help with the recent spike in the cost of gasoline, he responded that he wishes he could just wave a magic wand to make them go away. This impotent statement is ironic from a man who in the 2000 election insisted that he'd make Saudi Arabia keep up production to lower prices at the pump.

According to senior vice president of Exxon Mobil, Stephen Simon , there are four factors contributing to the current price of gas:

1. supply and demand
2. the weak dollar
3. geopolitical risk
4. Speculation

According to this same VP, supply and demand accounts for about $50-55 dollars of the cost of a barrel of oil. Current demand is artificially high because developing countries such as China and India subsidize the cost of fuel within their borders, thereby insulating their consumers from rising world oil prices as the supply tightens.

The dollar has lost about 45% of its value it the world market. Since the cost of oil is tied to the dollar, the price has gone up to compensate for the dollars decline in value.

Geopolitical risk - war in the middle east makes the markets jumpy and inflates the price.

And in last nights speech Bush admitted that speculation plays an important role in the recent price jump.

So the president claims he is powerless to do anything. But is he really.

There are three easy things he could do right this moment.

1. He could attempt to control inflation by increasing interest rates, and thereby propping up the value of the dollar.
2. He could influence supply by tapping into the strategic reserve.
3. He could try to reduce the impact of speculation through regulation.

Instead his only solution is to open new oil leases off Florida and California, and open up more of Alaska to drilling. A solution that at best would take 7-13 years to produce oil, and would result in an increase of supply of less than one percent of the global oil market. If a one percent addition to the market would make that much a difference, surely the administration could release oil from the strategic reserve and get the same impact immediately.