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The closer the election, the lower the price of gas ASK THIS | September 19, 2006 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.
By Gilbert Cranberg 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 the 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.” [Click here for an earlier piece by Peter Ashton on oil firm profits.] Price manipulation usually involves reducing supply to increase prices as Enron and other energy firms did earlier this decade to gouge California consumers. But if prices can be artificially upped, presumably they can be cut if the stakes warrant. The stakes in the fall election are huge, not just in who controls Congress but with what majorities. There is polling data that suggest the price of gasoline is a potent election issue; when it went sky-high recently, Bush’s popularity suffered. The possibility that gas prices have been, or are being, manipulated to influence the election is an issue that ought to galvanize the press. The comments by Peter Ashton amount to a road map for the press. Crude oil accounts for a big chunk of the price of gas at the pump; last year on average it was 53 per cent of the cost of each gallon. If, as Ashton says, gas prices are not correlating with crude oil prices, why not? In that connection, it would be worthwhile to know what has been happening to crude oil and gasoline prices abroad, say in Britain, France and Germany. As a world-class cynic, I wonder whether Iowa’s current rank among the cheapest places for gas in the country ($2.06 per mid-grade gallon) has anything to do with toss-up races for governor and two House seats. Is cause-and-effect at work here and is there such a pattern elsewhere? The possibility that the fall election is being “bought” every time a voter pulls into a gas station makes this an issue of unparalleled importance. The press ought to make it a high priority to uncover the facts wherever they lead.
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