Gas Prices Potentially Impacted by Gulf Oil Spill and President Obama's Proposed Solutions

Energy & Resources

By Amy Kletch

President Obama announced his three-part solution to the ongoing Gulf Coast oil spill as follows:

  1. Stopping all oil drilling in the Gulf of Mexico until it can be guaranteed that another spill will not occur as a result of drilling on the sea floor.
  2. Adding a $0.32-per-barrel tax to create a fund to cover the costs of future spills.
  3. Eliminating all tax break for all oil companies.

What then will be the effect of the proposed solution?  It is estimated that the tax per barrel will result in almost a $0.01 rise in price per gallon at the pump. The elimination of tax breaks will cause an increase in gas production costs, which will directly affect the price, and as a result, gas prices will continue to rise to offset the increase in taxes as tax breaks are eliminated.  The demand for foreign oil sources will increase if all drilling in the Gulf Coast is stopped because the U.S. is not in a position to embrace alternative energy sources at the present time. Increased demand will force the price of a barrel of oil to rise, and the price at the pump will rise in response.  A rise in gas prices will in turn create a rising cost in consumer goods, to compensate for the additional cost of transportation.  

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