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Cost of gasoline puts McCain, Obama at odds

McCain vs. Obama: Where They Stand

By Sean Mussenden | Media General News Service

Published: August 6, 2008

Part 2 of 5

WASHINGTON — Can the federal government bring down the high cost of gasoline anytime soon?

John McCain thinks so. Barack Obama, and most economists, are deeply skeptical.

With the price of fuel near $4 a gallon, short-term relief for drivers has emerged as one of the most hotly debated issues in the presidential campaign.

"We're not going to bring gas prices down easily (or) quickly," Obama told supporters in New Mexico last month. "I try to be honest with people. It's going to take some time."

McCain disagrees. He has backed several proposals that he says will reduce the cost of gasoline in the near-term, including a temporary suspension of the federal gas tax, and the removal of a moratorium on offshore drilling.

But economists and energy experts say both of those moves will do nothing to reduce gas prices in the short-term.

Last month, when McCain revealed his support for ending the moratorium on drilling on the Outer Continental Shelf along parts of the Atlantic, Pacific and Gulf coasts, he said it "would be very helpful in the short-term in resolving our energy crisis."

Even those in the oil industry who support lifting the moratorium say it is not a short-term panacea. Increasing the supply of oil could help push prices down eventually, but not for several years after the moratorium ends.

Cathy Landry, a spokeswoman for the American Petroleum Institute, an industry group, said that some fields off Florida and California could begin producing within five to 10 years.

"Offshore drilling is a cost-intensive, risky process, and every step along the way there could be hitches," she said. "You don't go from leasing to production overnight."

Nor would it bring prices down much. A 2007 study by the federal Energy Information Administration found that lifting the moratorium would not have any effect on prices for at least two decades, and even then, it would be minimal.

If the moratorium is lifted, in 2030 U.S. offshore oil rigs would produce 2.4 million barrels of oil per day, the study estimated. If it is left in place, the rigs would produce about seven percent less oil per day in 2030, 2.2 million barrels.

"Because oil prices are determined on the international market, however, any impact on average...prices is expected to be insignificant," the study said.

The industry disputed the estimates, arguing that they are based on analyses that used decades-old technology. New analyses might reveal larger pockets of oil, Landry said.

"We really don't know how much is out there," she said.

Obama, and many Democrats in Congress, argue that the potential for environmental damage from new offshore drilling outweighs the limited, long-term benefits.

His campaign has put more emphasis on strategies for reducing the price of gas over the next two decades by improving gas mileage standards and increasing federal investment in hybrids and alternative fuel vehicles. McCain has made similar proposals.

In recent weeks, McCain has acknowledged that drilling is not likely to provide short-term relief by increasing supplies. But he argued that the move could have a "psychological impact," on the oil futures markets that could help to bring prices down immediately, even if no new offshore wells are drilled for years.

The role of speculation in oil futures markets, and their effect on gas prices, is one area where Obama and McCain see eye-to-eye. Both say the markets need to be more tightly regulated to prevent speculators from driving up the cost of oil.

Economists are divided on how much blame speculators deserve for the current price of oil, as opposed to tight supplies and growing worldwide demand for oil.

Obama has been deeply critical of another proposal McCain says will bring down short-term prices: suspending the 18.5-cent gas tax for the summer.

"When John McCain says we're going to drill our way out of the problem, or suspend the gas tax for 60 days...that's a gimmick. He's not being serious," Obama said.

Obama opposes the move on the grounds that it will do nothing to actually lower pump prices while denying the government money it uses to fix highways.

McCain, though, insists that the proposal is serious, and has called it "the most direct and obvious way to give Americans a break at the gas station."

Although it seems counterintuitive, economists say a temporary elimination of the gas tax would not reduce prices by more than a few cents, and perhaps not at all.

That's because the price of gas generally fluctuates with supply and demand. Removing the gas tax would encourage demand by make driving cheaper.

Coming Wednesday: Health Care