Lower gasoline prices: an econopolitical conspiracy?
The statistics show an uncanny relationship: As oil prices inched higher over the past five years, President Bush's approval ratings sagged lower. So perhaps it's not surprising that with a sudden and almost unprecedented drop in gasoline prices just before a crucial election, conspiracy theories abound.
It's not just the bloggers suggesting that the 66-cent drop in the average pump price over the past seven weeks to $2.38 per gallon is thanks to the collusion of former oilmen President Bush and Vice President Cheney and their Big Oil buddies. (Bloggers advancing this theory include Long Delayed Echoes, NH Insider, Various Miseries, and The "What Do I Know Grit.") A Gallup Poll found that 42 percent of the public thinks the Bush administration is deliberately manipulating the price. As plausible as that scenario apparently seems, energy analysts nevertheless deem it impossible.
"There are so many buyers and sellers and traders out thereyou could never put together a conspiracy without having headlines all over," says Michael Lynch, president of Strategic Energy and Economic Research, who long has argued the oil market was heading for a fall. "I understand it seems simplistic to argue that trader psychology changes, but sometimes the simple answer is best."
Several factors combined to shift oil market psychology in August, touching off the second largest uninterrupted price decline in 16 years of government tracking. First, the National Oceanic and Atmospheric Administration adjusted its hurricane forecast downward slightlyenough to have a big impact, since traders had been braced for the worst after last year's terrible storms. At the same time, peak summer driving season was ending, and despite a change in antipollution additives and continuing recovery from last year's hurricanes, refiners kept gas flowing without shortages. Finally, largely because of those changes in gasoline formulations and the mix of products on the market, major energy trader Goldman Sachs embarked upon a massive liquidation of its position in gasoline futuresshifting to other energy investments instead. Gasoline prices fell sharply, and pulled crude oil prices down with them.
"These things conspired to put tremendous downward pressure on gasoline," says Larry Goldstein, president of the Petroleum Industry Research Foundation. "Use the word conspired, if you want, but not conspiracy."
Where oil prices are headed now is anyone's guess. Goldstein believes this is a temporary calm and that world capacity to produce and refine oil is so tight that any geopolitical or industry event could pull up prices again. Lynch, however, wouldn't be surprised to see $40-per-barrel crude oil (down from the July peak of $74) by the end of the year.
Sure, it all looks just too convenient for President Bush, but keep in mind that when he took office, the price was only $29.