Why Gas Prices Are Falling

[one...two...tree 2,762]

Plummeting gas prices have been good news for the motoring public. They also raise the questions: Why? How? Since their August highs, oil prices dropped from $77 to $60 per barrel. Gas prices have fallen from an average of $3.04 to $2.25 per gallon. In a September USA Today poll 42 percent of Americans thought there was a direct connection between the Republicans wanting to keep control of Congress and gas prices falling.

Free-market types went to town. Oil is set by market forces, not Washington, rang the unified voice of analysts. "If only Bush had that kind of control," mused White House spokesman Tony Snow. But subtle manipulation is a form of control.

Let's back up. In July, legendary investor Jim Rogers -- who got his start with George Soros -- and other Wall Street analysts were saying that within the scope of the bull market, oil prices would head over $100. This would translate to roughly $4.00 to $4.50 per gallon at the gas pumps.

Meanwhile, the White House was evading blame for gas prices having doubled like Olympian dodgeball champions. It's not us. It's unrest in Iraq. Nuclear threats from Iran. Growth in China. Economists said, It's supply and demand, stupid.

Following their logic, and given the second-fastest drop in gas prices ever, we'd expect a noticeable reversal of those factors: an end to the war in Iraq, perhaps; India and China halting production; the Iranian president warmly embracing Bush and the home team. None of this happened. As far as supply goes, this spring US crude oil inventories were at their highest point since May 1998.

Manipulation can be physical or psychological. No, Bush wasn't calling his broker to short the market and Cheney probably wasn't conversing with oil execs to back it up. But long-term mutual back-scratching relationships are potent. An overly speculated market like oil (the most traded commodity in the world) picks up on subtle signs. Just as traders push the market up, they can take it down, depending on those signs.

If detectives from CSI were investigating the plummet in oil prices, they'd look for motive and method. Motive's obvious: strategically important midterm elections. With Iraq and swarming allegations that the Administration has created more terrorism than before, there's not a lot the GOP can control. According to Doug Henwood's Left Business Observer study, there's a 78 percent correlation between the direction of gas prices and approval for the GOP.

Republicans have been pleased to focus on what they can manipulate, if not overtly control. Big Oil gave the GOP 81 percent of its $63 million in campaign contributions since Bush took office. Republicans are giving Big Oil a $5 billion helping of tax breaks. Last November the Republican-led Senate Commerce Committee, headed by Alaska Senator Ted Stevens, gave oil companies a post-Katrina break to keep their exorbitant profits. Democrats called for windfall profits. Republicans didn't.

After Katrina oil companies like Exxon, which also happen to own the major oil refineries in the country, increased their refining profits, which had direct implications on the price of gas at the pumps -- that made them higher than the rising price of crude oil would dictate.

In September the difference between the cost of crude oil and the price of gas after the refining process (called the "crack spread" in the markets) has narrowed substantially, meaning oil refiners are extracting less profit because they're charging proportionately less at the independent gas station pumps.

Just as Enron and others could manipulate, if not directly control, California prices by closing power plants at will, so can oil companies reduce refining profit margins (which were gigantic) to keep their friends in power. That's easier to control than futures where other players are in the market, and it's something retailers pass on to drivers. This is not conspiracy, but self-preservation.

Other strong messages came from Washington. My favorite is the one that came directly from the Federal Reserve. For two years, the Fed has been raising interest rates due to inflationary pressures (such as the high cost of gas). Then, it stopped -- the day after gas prices reached their August 7 peak of an average $3.04 per gallon. The next day, the Fed said that despite high energy prices, inflationary pressures would "moderate."

The market slide started that day, not a sudden change in supply or demand. On September 20, the Fed again left rates unchanged, saying energy prices were in check, causing a further slide. Global crude oil prices fell, but gas prices fell faster.

Wall Street analysts, traders and hedge funds don't care about any of these reasons. They just don't want to be caught behind the ball, so they sell the market, causing further price drops. Yes, those are market forces -- but they are market forces with a lot of push from Washington-related signals. Why now? To say the election has nothing to do with it would be naïve. To say gas prices won't be up again afterward would be wrong.

Nomi Prins is a senior fellow at the public policy center Demos and author of Other People's Money and Jacked: How "Conservatives" are Picking your Pocket (Whether you voted for them or not).

[GaryC 7]

If that were true then the price of gas would only go down in America. Ask Jinky, the price is going down there also. The truth is it is supply and demand. The libs just want to blame everything on Bush and see conspiracy everywhere. Bush does not have control over the price of gas and the kook site that published that is no proof.

[one...two...tree 2,762]

If that were true then the price of gas would only go down in America. Ask Jinky, the price is going down there also. The truth is it is supply and demand. The libs just want to blame everything on Bush and see conspiracy everywhere. Bush does not have control over the price of gas and the kook site that published that is no proof.

The article said just that. The market controls the price, however, outside pressures as described in the article can affect the market.

[GaryC 7]

Gas prices have fallen almost $1 here. The oil companies margin is just 10c/gal. So the most the oil companies can influence things is just 10% of what they went down. Bush and politics have nothing to do with the price of gas.

[one...two...tree 2,762]

Gas prices have fallen almost $1 here. The oil companies margin is just 10c/gal. So the most the oil companies can influence things is just 10% of what they went down. Bush and politics have nothing to do with the price of gas.

Gary, to say that government policies have no impact or influence on the market is incredibly naive. Take for example the huge Fed tax exemption for buying very large SUV's, or the 5 billion dollar tax break to the oil companies. If gov't didn't think they could have an influence on the market, then it wouldn't be doing such things. Now tie such policies or industry favoritism to the Bush Administration and you now have an incentive or motivation for those industries that have benefitted the most to do what they can in ensuring those benefits continue. That was true for Clinton as well. I think the article explains very plainly how the connection exists between the price we pay at the pumps and the oil companie's objectives.

[GaryC 7]

Gas prices have fallen almost $1 here. The oil companies margin is just 10c/gal. So the most the oil companies can influence things is just 10% of what they went down. Bush and politics have nothing to do with the price of gas.

Gary, to say that government policies have no impact or influence on the market is incredibly naive. Take for example the huge Fed tax exemption for buying very large SUV's, or the 5 billion dollar tax break to the oil companies. If gov't didn't think they could have an influence on the market, then it wouldn't be doing such things. Now tie such policies or industry favoritism to the Bush Administration and you now have an incentive or motivation for those industries that have benefitted the most to do what they can in ensuring those benefits continue. That was true for Clinton as well. I think the article explains very plainly how the connection exists between the price we pay at the pumps and the oil companie's objectives.

And to think that Bush can just pick up the phone and tell the oil companies to make the price of gas go down $1/gal just so he can score political points is incredibly wrong. Your OP made that connection.

[mawilson 2,133]

If the article is true, we should all vote Republican then, to keep the gas prices low?

[Ban Hammer 13,782]

If the article is true, we should all vote Republican then, to keep the gas prices low?

i've got to make a car that runs on democrats

[cmartyn 0]

I notice we stopped replacing the oil in the SPR.

That would lower demand somewhat. It only takes a million barells to move the market week to week. The SPR is a one billion barell reserve that could easily affect short term oil prices.

[Carol&Marc 0]

Gas prices have fallen almost $1 here. The oil companies margin is just 10c/gal. So the most the oil companies can influence things is just 10% of what they went down. Bush and politics have nothing to do with the price of gas.

Gary, to say that government policies have no impact or influence on the market is incredibly naive. Take for example the huge Fed tax exemption for buying very large SUV's, or the 5 billion dollar tax break to the oil companies. If gov't didn't think they could have an influence on the market, then it wouldn't be doing such things. Now tie such policies or industry favoritism to the Bush Administration and you now have an incentive or motivation for those industries that have benefitted the most to do what they can in ensuring those benefits continue. That was true for Clinton as well. I think the article explains very plainly how the connection exists between the price we pay at the pumps and the oil companie's objectives.

And to think that Bush can just pick up the phone and tell the oil companies to make the price of gas go down $1/gal just so he can score political points is incredibly wrong. Your OP made that connection.

Its controlled by the market

[one...two...tree 2,762]

Gas prices have fallen almost $1 here. The oil companies margin is just 10c/gal. So the most the oil companies can influence things is just 10% of what they went down. Bush and politics have nothing to do with the price of gas.

Gary, to say that government policies have no impact or influence on the market is incredibly naive. Take for example the huge Fed tax exemption for buying very large SUV's, or the 5 billion dollar tax break to the oil companies. If gov't didn't think they could have an influence on the market, then it wouldn't be doing such things. Now tie such policies or industry favoritism to the Bush Administration and you now have an incentive or motivation for those industries that have benefitted the most to do what they can in ensuring those benefits continue. That was true for Clinton as well. I think the article explains very plainly how the connection exists between the price we pay at the pumps and the oil companie's objectives.

And to think that Bush can just pick up the phone and tell the oil companies to make the price of gas go down $1/gal just so he can score political points is incredibly wrong. Your OP made that connection.

Maybe we're reading different articles?

No, Bush wasn't calling his broker to short the market and Cheney probably wasn't conversing with oil execs to back it up. But long-term mutual back-scratching relationships are potent. An overly speculated market like oil (the most traded commodity in the world) picks up on subtle signs. Just as traders push the market up, they can take it down, depending on those signs.

If the article is true, we should all vote Republican then, to keep the gas prices low?

Oh, if they were only that nice... bank on the prices to go back up after the election...and of course the Repubs will blame it on the wart in Iraq, instability in the Middle East, or those bloody terrorist supporting liberal Dems.

hehehe...mispelled war...but I think it's appropriate so I won't fix it.

Edited October 20, 2006 by Steven_and_Jinky

[isleta521 5]

The cost to refine crude oil to usable fuel is an ever increasing cost. Aside from that, finding new ways to produce crude from older depleted wells such as gas injection and other enhanced oil recovery methods in the US makes it more difficult (expensive). And where in the past, many offshore ultradeep resevoirs have been passed up for easier, less challenging fields are now being drilled and produced because the demand is now there.

The problem is much bigger than Bush or Haliburton Im afraid. Its all about price and demand. My work is related to Oil and Gas and we see many companies that were hanging on for life a few years ago now are just busier than ever. Rigs are being built at a rate unheard of. Some companies have an 8 month backlog for simple oilfied components because the demand is there and finding trained, competent people to operate rigs is now hard also.

Gas fortunately has always been lower for Americans for many years as compared to most of Europe. Unfortunately now it is (almost) in line with the rest of the world.

I dont trust the big (or even the small ones) oil companies either. They dont care about me. But they are in business to make money just like other any other company. IT sucks when I fillup my truck and car (the RV is parked indefinately with a forsale sign). Just wait until India and Russia, Like China, get their act together (which they already starting) and start buyiing / importing more oil also.

[Mr. Big Dog 10,747]

If the article is true, we should all vote Republican then, to keep the gas prices low?

No since gas prices actually soared under their leadership. I remember well filling up for less than a buck a gallion pre-Bush. But yes since Americans tend to have a very short memory and attention span...

[Sheriff Uling 3]

GaryC is pro-republican and Bush sucks. I back the President only because he is our commander in chief and I respect the position. However, the correlation between gas prices, Bush's low approval rating, and inefficiencies in a republican house and senate tend to lean more toward fact than coincidence. At any rate, people are free to believe whatever they want... regardless of facts or deviations from the truth! That's my 5 cents and I want my change. LOL! Enough said! Cheers!!!

[one...two...tree 2,762]

GaryC is pro-republican and Bush sucks. I back the President only because he is our commander in chief and I respect the position. However, the correlation between gas prices, Bush's low approval rating, and inefficiencies in a republican house and senate tend to lean more toward fact than coincidence. At any rate, people are free to believe whatever they want... regardless of facts or deviations from the truth! That's my 5 cents and I want my change. LOL! Enough said! Cheers!!!

Sheriff, you're not a man who minces words!