A Silver Bullet for High Oil Prices? Lawmakers Pounce on Subsidies, Offshore Drilling

May 18, 2011— -- Congress is hustling into action mode as Americans grow increasingly agitated with high gasoline prices, but there are few signs of a bipartisan consensus. Nor is there much indication that Washington can help with a problem that's being driven largely by global supply-and-demand economics.

The Senate today will vote on a bill crafted by Republicans to expand offshore oil production. The legislation -- expected to fail -- comes a day after an effort by Democrats to repeal roughly $2 billion a year in tax breaks for the five largest oil and gas conglomerates was also unsuccessful.

Separately, the Republican-dominated House has passed three bills that would expand offshore oil and gas drilling.

President Obama last week approved the extension of oil and gas leases in the Gulf of Mexico and off of Alaska's coast.

But none of these measures will provide a quick fix to the issue of high gasoline prices, and the various legislations amount to little more than political posturing, experts say.

"There is practically nothing that Washington can do to lower prices at the pump," said Pavel Molchanov, an analyst at Raymond James, a financial advisory group. "The reality is the price of fuel is overwhelmingly set by the global oil market, by supply-and-demand dynamics, geopolitical risks... It's not helpful for policymakers to pretend otherwise."

Even lawmakers have acknowledged that Congressional bills may have little impact on the price of oil today.

"We don't seem to learn from our mistakes," Sen. Joe Manchin, D-W.Va., said at a hearing Tuesday. "Unless we have an energy policy... we're going to continue to go down this for the next 20 to 30 years. We need to break this cycle."

The average national retail price of gasoline was $3.96 per gallon on Monday, according to the U.S. Energy Information Administration. That's more than $1 higher than the same time last year and nearly double the price in May two years ago. Prices are highest on the West Coast and in the mid-Atlantic region, hovering above the $4 per gallon mark.

The pressure at the pump has accelerated calls on Capitol Hill for a comprehensive energy policy, but Republicans and Democrats remain divided on how lawmakers should tackle the issue.

Experts like Molchanov say neither party's short-term proposals will result in meaningful change.

"Both parties are jumping on the bandwagon because it's politically popular at the moment, but ending tax breaks would have no real observable effect on the price of oil," he said of the Democrats' failed bill. In fact, "it would support higher prices" because there will be less drilling.

GOP calls to expand offshore oil drilling will also be little more than a drop in the bucket, he added.

"The idea that more drilling today would immediately lower prices at the pump is just silly," Molchanov said. "It's not going to move the needle in a meaningful way. Drilling today does not equate to production today."

Even in the long term, the expansion would have to be significant.

U.S. offshore production constitutes less than two percent of total global oil supply and even doubling it would hardly make a dent.

Turmoil in the Middle East has contributed to much of the turmoil in the markets, which has led to a surge in gasoline prices for consumers. Much of Libyan production remains offline as civil unrest continues to grow in that country. The volatile political climate in Syria and Yemen has also added what insiders dub a "risk premium." Until the situation in the Middle East quiets down, observers say, markets are likely to continue roiling.

The decline in the value of the U.S. dollar has also made oil purchases more costly for the United States.

Domestically, flooding in Mississippi and surrounding areas has elevated concern about disruption at refineries in the Gulf of Mexico.