U.S. President Barack Obama arrives in Las Vegas to begin a two-day, four-state trip on Wednesday to promote plans to make the United States less dependent on foreign oil just as voters grow increasingly exasperated about rising gasoline prices, a trend that could influence the President's re-election chances.JASON REED/REUTERS
Oil producers in Canada and the northern United States stand to be big beneficiaries of U.S. President Barack Obama's effort to insulate himself from political fallout over rising pump prices.
Amid warnings that U.S. pump prices could hit $5 (U.S.) a gallon if the standoff with Iran escalates, Mr. Obama is engaged in a campaign swing through the U.S. Midwest to offset Republican attacks on his energy policy.
On Thursday, he will stop in Cushing, Okla., and his aides have already signalled that the President will endorse the speedy approval of TransCanada Corp.'s plan to build the southern leg of its proposed Keystone XL pipeline, connecting the Cushing pipeline hub to the refineries on the U.S. Gulf Coast.
The project would connect Canadian oil producers to the vast Gulf Coast refining region, and help shrink the discount that crude producers from Canada and North Dakota's Bakken field receive for their oil.
The President finds himself between the rock of Iranian confrontation and the hard place of rising gasoline prices, which would spike dramatically if oil tanker traffic in the Persian Gulf is severely disrupted. The U.S. and European Union have imposed sanctions on Iranian crude sales over its nuclear ambitions. Tehran has threatened to retaliate by closing the vital Straits of Hormuz to oil tankers.
In a report Wednesday, BMO Nesbitt Burnsanalysts said there is a "real possibility" of pump prices hitting $5 (U.S.) a gallon if the geopolitical turmoil heats up. That would translate to about $1.70 a litre in Canada.
While the bank said it wasn't forecasting $5 gasoline , many analysts warn pump prices could soar to $4.50 this summer, which would cause widespread pain in the North American economy and present enormous challenges to Mr. Obama's re-election bid.
But there is little that governments can do about rising crude prices , at least in the short term, said Michael Lynch, president of Strategic Energy and Economic Research Inc. of Cambridge, Mass.
"The only thing the government could really do is to tell the Iranians: 'We're ending all sanctions, please keep pumping,' and I don't see that happening," Mr. Lynch said.
"The Iranian situation, along with unrest in Syria, is the biggest factor now in the market driving prices up and those things are not under the control of importing governments, including the U.S. government."
Republican presidential candidates – who are urging the President to be even tougher with Iran – have slammed him over gasoline prices. They criticize Mr. Obama for not opening up more federal land to drilling, for imposing costly regulations, and for proposing new taxes on oil and gas producers. And they have condemned his decision to force TransCanada to re-route the Keystone XL pipeline and re-apply for a permit.
Mr. Obama responds by pointing out that the U.S. is now the world's fastest-growing producer of crude oil, and that aggressive new fuel efficiency rules and growing biofuel production are driving down gasoline demand. As a result, the U.S. dependence on imported oil is now at a 17-year low and falling.
As he prepares to land in Cushing Thursday, the White House has confirmed that Mr. Obama supports fast-tracking approval for the southern leg of the Keystone XL project. Because it does not cross the border, that portion is not subject to the cumbersome State Department review, and the company expects to obtain necessary permits this year and finish construction in 2013.
TransCanada spokesman Terry Cunha said Wednesday that the Keystone pipeline would give Gulf Coast refiners "access to cheaper Canadian oil, which should put downward pressure on U.S. gas prices."
But many analyst say it will lead to increased prices for North America's benchmark West Texas intermediate oil, which has been trading at a significant discount to international crudes such as North Sea Brent and against which Canadian crudes are priced.
"The only thing the pipeline project would do is to bring the price of WTI closer to the price of Brent or water-borne crudes in the Gulf Coast region," said Jesse Mercer, manager for oil markets for Washington-base consultant, PFC Energy Group.
"It wouldn't do anything to the cost of the product itself that would be refined out of it."