Gas prices fall by 1/3, but oil prices drop by less than 1/4. Is Big Oil out to help the GOP win in November?

September 24, 2006 by mugsy.

On a recent politico talkshow, the talking-head pundits tried to figure out the reasons for the sudden precipitous fall in gas prices (nearly $1 lower in some places since August), and on the surface, many of those reasons seemed rational:

1. “A surprisingly quiet hurricane season” - Unlike last year when we had so many named storms we actually ran out of letters for the first time in our history of naming storms, no major hurricanes devistated the Gulf Coast (so far) this year like they did last year. Fears over another devistating hurricane season helped push oil prices through the roof this year, topping out at $78.40 per barrel on July 14th. However, “hurricane season” does not officially end until November 30th of the year, and last year, Tropical Storm Zeta was the last named storm of 2005 on December 30th (running into January). That’s another three full months of potential hurricane threats, almost half the season still lies before us. So why are crude prices dropping NOW with the season barely half over and indications that Global Warming is shifting that season ever later in the year?

2. “The possibility of military action in Iran never materialized” - Once again, there is NO reason to justify a drop in oil prices *now* with regard to this issue. The Bush Administrations rhetoric over Iran has shifted gears some, from “seeking nuclear weapons”… a clear looser issue because of just how far off such a threat is… to “a sponsor of terrorism and instability” that might be fought through sanctions. And just what do you think the Arab World’s response to sanctions against Iran might be? You guessed it, stemming the flow of oil.

3. “The Saudi’s have agreed to increase production to make up for the reduced output by Iraq” - If you could name one way to make things worse in Iraq, what would it be? “Drive up unemployment”? An already angry Iraqi with nothing to do all day but swelter in the heat because he only enjoys 5 hours of electricty a day, then looses his job because Saudi Arabia is under-cutting your employers cost of doing business, isn’t going to make anyone happier… except maybe the Saudi’s and maybe Iran and Syria. And since Saudi will only be supplanting the Iraqi shortfall… which naturally they will have to increase even more with this move as Iraqi supply diminishes even more… it is difficult to understand how this move contributes to the long term (aka “futures market”) decline in the price of oil.

Now here is where their arguments fall apart: The price of oil has fallen just over 1/4 in price, but the price of gasoline has fallen by nearly 1/3 (locally, we’ve gone from $3 last August to under $2.20 today, and we’re not alone). Why the disparity? Has global demand suddenly slumped? No. Has the threat to our supply suddenly diminished? No. In fact, didn’t Hugo Chavez, President of Venezuela, who supplies the U.S. with almost as much oil than Saudia Arabia, threatened at the UN last week to drive oil prices up to $200/barrel if the U.S. did not stop its war-mongering.

So how do they account for the sudden decline? Well, maybe this had something to do with it:

Two weeks ago, an ABC News/Waskington Post poll listed “gas prices” as Americans’ #3 concern, beating out terrorism, among reasons of discontent with George Bush and the Republican Party.

And suddenly… faster than you can say “gravy train”… gas prices plummet. Gas prices fell, “terrorism” moved back into the #3 spot, and President Bush’s poll numbers improved.

Coincidence? I’ll let you be the judge.

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