Gas Prices Dropping Just Before an Election? Hmmm.

Nieman Watchdog, The closer the election, the lower the price of gas,

Gil Cranberg says this correlation should galvanize the press. He wants to know, among other things, whether prices are dropping in countries that don’t have upcoming elections.

Q. Did George W. Bush’s buddies in the oil industry contrive to lower gasoline prices to help him (and themselves) in the fall elections?

I looked for guidance from three people knowledgeable about oil markets and put this more-neutral question to each: Is there possibly a link between the drop in gas prices in this country and the coming election?

One said flatly no, it’s just due to lower demand now than during the driving season.

Another said he was puzzled by the drop because people he trusts tell him it is not due to, or cannot be explained by, a comparable drop in crude oil prices.

The third had a similar reaction, noting that, in the past, when the price of crude oil dropped, the price of gasoline took much longer to come down. He said that price of gas customarily declines with the end of the driving season, “but not as sharply as it has in the last few weeks and certainly never went down faster than the price of crude, as it has.”

The latter two respondents, independently, referred me to Peter K. Ashton, a long-time consultant on petroleum issues who has testified on gasoline pricing before the U.S. Senate Permanent Subcommittee on Investigations. Ashton’s response to the same question:

“As an economist, I cannot speculate on the politics that may be involved, but my recent research suggests that the recent drop cannot be explained by the drop in crude prices or the change in inventories alone. From an economic standpoint, therefore, it certainly raises questions in my mind as to whether the high prices we saw this summer were in any way justified by market fundamentals. I do not believe that they were. To the extent that prices are now declining more than market fundamentals might dictate suggests to me that a decision has been made to reduce prices back to levels that might be considered more in line with the forces of supply and demand. Whether that is a politically motivated decision is up to others to decide, not me! Nevertheless, it is clear to me that the prices we witnessed this summer could not be justified by the market.”

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8 Responses to Gas Prices Dropping Just Before an Election? Hmmm.

  1. Patrick (G) says:

    In Other Words; we’ve probably been rolled like California was rolled by Enron.

  2. Thomas says:

    There’s cranks, and then there’s this.

    Well, it’s no surprise that an administration that planned and executed the 9/11 attacks would manipulate the price of gas to ensure the re-election of Republicans.

    I think they also got the clerk at the convenience store to say “good morning” to you yesterday with a big smile. All part of the plan, Michael, all part of the plan.

  3. wcw says:

    Short answer: no.

    Longer answer via the EIA.

    Reductio answer: if the RNC had the cash to move unleaded around, they wouldn’t need to. They could just buy our votes outright. Gasoline refiners churned out a billion dollars worth of gasoline last week. Moving that market takes real money, not the few ducats political campaigns cost.

  4. Mojo says:

    The reason gas prices are decreasing at a different rate than oil prices is that we weren’t paying three dollars a gallon over the summer because of the cost of oil in the first place. They charged that much simply because people would pay it.
    That doesn’t mean there’s nothing fishy going on now. The text of the article wcw links to implies that the price reduction is driven by reduced demand. But if that was the case, you’d expect that the amount of unsold gasoline would increase whereas the tiny little graphs provided at the bottom of the article show just the opposite. Stocks of gasoline (and crude oil) are lower than they were over the summer when “high demand” was driving the price through the roof. When you have a vital commodity with relatively inflexible demand and supply like this, the logic of markets really goes out the window.
    Obviously the RNC can’t afford to bribe the oil companies to adjust gas prices. But they don’t need to. A Democrat-dominated Congress might well have done something about the part of the summer price increase that was pure extra profit while the GOP has shown time and again that thye won’t. Taking a smaller profit for two months or so this year in order to guarantee the freedom to inflate profits for the next two years could well look like a smart business decision.

  5. Mojo says:

    The reason gas prices are decreasing at a different rate than oil prices is that we weren’t paying three dollars a gallon over the summer because of the cost of oil in the first place. They charged that much simply because people would pay it.
    That doesn’t mean there’s nothing fishy going on now. The text of the article wcw links to implies that the price reduction is driven by reduced demand. But if that was the case, you’d expect that the amount of unsold gasoline would increase whereas the tiny little graphs provided at the bottom of the article show just the opposite. Stocks of gasoline (and crude oil) are lower than they were over the summer when “high demand” was driving the price through the roof. When you have a vital commodity with relatively inflexible demand and supply like this, the logic of markets really goes out the window.
    Obviously the RNC can’t afford to bribe the oil companies to adjust gas prices. But they don’t need to. A Democrat-dominated Congress might well have done something about the part of the summer price increase that was pure extra profit while the GOP has shown time and again that thye won’t. Taking a smaller profit for two months or so this year in order to guarantee the freedom to inflate profits for the next two years could well look like a smart business decision.

  6. wcw says:

    Yes, exactly. That is why the EIA (a fabulous government agency, if I may say) handily provides an average range for “the amount of unsold gasoline,” since it exhibits strong seasonal patterns that mimic the strong seasonality of gasoline consumption.

    The commentary I posted is a couple weeks old. If you look at the most current gasoline page and scroll to the little, tiny charts, you will see the red dots for current weekly storage (‘the amount of unsold gasoline’ more or less) are, and have for weeks been, well above normal average ranges. When it comes to commodities I am mostly a dilettante, but assessing markets actually is my profession, when I can make it pay. What the data say to me is that refiners are dropping prices because they aren’t selling enough gasoline at the higher ones they’d like. Full disclosure: I have been short refiners for a while now.

    I don’t trust today’s GOP not to game anything, but they haven’t got the money for this.

    The evidence suggests that XOM and VLO and CVX, all GOP-friendly outlets who might, aren’t selling low out of choice.

    Stick with the conspiracy theories that are true, like the Iraqi CPA’s loyalty test and FL2K.

  7. Ben Hyde says:

    By playing with the charting here you can make this chart … draw your own conclusions.

  8. audioviking says:

    Lets ask the question a different way….

    Are the oil industry folks dropping the commodity price of oil to affect the outcome of the elections?

    This is a much easier scenario to believe than the administrations ability to accomplish this. If they had there way, Bush’s cabal if idiots would approporiate money from the tax payer’s grand children and use that money to manipulate the market in their favor…

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