Editore"s Note
Tilting at Windmills

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September 22, 2006
By: Kevin Drum

PETROLEUM POLITICS....Brendan Nyhan is gone from the American Prospect and is now back at his own site. I think this is for the best: TAP's politics are liberal while Brendan's are centrist. There's no special reason that a liberal magazine should go out of its way to beat up on liberals for minor peccadilloes, as Brendan sometimes does, but neither is there any reason that a centrist should be prevented from beating up on liberals in his own way if he wants to. It was not a felicitous marriage in the first place.

That said, Brendan does his centrist thing today by debunking something that's become a common refrain in the press: namely that President Bush's approval ratings are driven almost entirely by gasoline prices. The basic chart is here, but as Brendan points out, there's a problem with it:

[9/11] boosted President Bush's approval ratings into the stratosphere, and they've more or less declined consistently since then. Meanwhile, gas prices have trended upward over Bush's presidency. The two series are correlated, but any variable that trended upward during this time period would show a similar relationship (I can "explain" 62 percent of the variance in Bush approval using a variable that just counts the number of months he has been in office).

Gasoline prices almost certainly have some effect on presidential approval, but a serious look at the data suggests it's a modest one. This is, I suppose, good news for liberals since it means that the recent fall in gasoline prices doesn't necessarily spell doom for the November elections.

And speaking of gasoline prices, Andrew Tobias is suspicious about their recent sharp drop:

So gasoline prices have come down and people are happy again just in time for the mid-term election. What a stroke of luck for the oil companies! What a further stroke of luck it would be if prices then went back up after the election.

Well, this does look suspicious. But here's the thing: over the past six weeks the global price of crude oil has decreased 18%; the U.S. price of oil has decreased 18%; and the spot price of oil has decreased 15%.

And the price of gasoline? It's gone down 16%. The end of the summer driving season accounts for a bit of this, but as you can see in the chart on the right, gasoline prices have followed crude oil prices pretty closely for the past six years, which means that this drop is pretty much what you'd expect based on the underlying drop in the cost of oil. And while it's possible that American oil companies and hedge funds have somehow conspired to manipulate the entire global oil market over the past couple of months in the service of Republican victory in the upcoming midterm elections, it's not very likely. Even Dr. No would have trouble with that. I suspect this needs to be marked down as coincidence, not conspiracy.

Kevin Drum 1:19 PM Permalink | Trackbacks | Comments (72)

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Comments

Gasoline prices tend to drop every year as Autumn approaches. The only difference with this Autumn is that gas prices are "down" to $2.55. Am I the only one who thinks that this pretty much explains the current drop off?

Posted by: keptsimple on September 22, 2006 at 1:24 PM | PERMALINK

The end of summer driving season generally brings lower gasoline prices, but it's usually a fairly small drop, not the 16% we've seen over the past few weeks. I think the drop in crude oil prices explains most of the drop, with the end of summer contributing a little bit too.

Posted by: Kevin Drum on September 22, 2006 at 1:27 PM | PERMALINK

"And while it's possible that American oil companies and hedge funds have somehow conspired to manipulate the entire global oil market over the past couple of months, it's not very likely."

Let's rewrite:

While it's possible that Enron and their public accounting firm have somehow conspired to manipulate the electricity market over the past couple of months, it's not very likely.

Hmmmmm.

Posted by: pebird on September 22, 2006 at 1:27 PM | PERMALINK

Pebird: Point taken. But the entire global crude oil market is a whole different beast. Maybe Dr. No could pull this off, but I don't think Exxon could.

Posted by: Kevin Drum on September 22, 2006 at 1:29 PM | PERMALINK

LOL -- Dr. No.

LOL also. Too funny!!

Posted by: Al on September 22, 2006 at 1:35 PM | PERMALINK

Falling oil and gas prices for the general election a coincidence? I don't know really. I mean I am a true agnostic when it comes to conspiracy theories. If you can't show me some real facts I tend to reserve judgement. That said, looking at it from the perspective a true tinfoil hatted conspiracy nut, the likely conspirators are not Bush and the US oil companies. The US oil companies don't have the power to really affect world oil prices. The Saudis are the only ones with that power. Would the Saudis want Bush to keep tight control over the US? What do they get out of it? I don't know...I left my tinfoil hat somewhere. Of course i don't think there has been a US President in history with closer ties to the Saudi Royal family than George W. Bush. And there was the strange deal he cut back in April of 2005, where Bush greenlighted less restrictive visa policies so the Saudis could send several thousand of their young people over here each year to study with full scholarships. Now, what was it that most of the 911 hijackers had in common? (I don't think that they specifically excluded flight training from that deal either).

Yup, probably all coincidence. But if I ever find my tinfoil hat...

Posted by: majun on September 22, 2006 at 1:37 PM | PERMALINK

Never underestimate the power of the force....

....of trusts and cartels!

Don't be too proud of this coincidence you've constructed. The ability to manipulate the election is insignificant next to the power of the force...

....of trusts and cartels!

I find your lack of faith disturbing.... ;-)

Thanks,

Mike

Posted by: lord_mike on September 22, 2006 at 1:38 PM | PERMALINK

I'm not an oil expert, but follow the market as an individual invester. From what I can tell, world prices dropping to $60/bbl or so is not too surprising, given lower geopolitical tensions in the area and seasonal factors.

I find it difficult to believe any individual or group of individuals could afford to manipulate the oil market. It also does not seem a cost-effective way to go. When you can buy elections for tens of millions, why risk tens of billions to move oil prices around?

Governments are a different matter. I can well imagine how the Saudi government would be willing and able to manipulate the market to support their "brother". They can also afford to take a longer view.

Tom O

Posted by: Tom O on September 22, 2006 at 1:40 PM | PERMALINK

Well, we can say one thing for certain:

It's certainly not due to the contribution of the newly-gushing liberated oil fields of Iraq.

Much of it is a perceptual difference from last summer, I think. No hurricanes to threaten Gulf Coast installations has made a rather significant difference in that department.

Of course -- that could all change at any moment.

Bob

Posted by: rmck1 on September 22, 2006 at 1:41 PM | PERMALINK

Gas prices may be falling but darth cheney is still the devil which is why his bush smells like sulphur.

Posted by: razorboy on September 22, 2006 at 1:42 PM | PERMALINK

Kevin,

Before taking Brendan's word - take a look at the graph again. Yes, overall the paralell rise in prices and fall in popularity are probably due to 9-11 passing. But what's striking is how those little peaks and bumps also look like they move together.

The alleged statistical analysis doesn't argue against that. Because unfortunately, Spinsanity proved to be pretty insane over time.

Bummer.

Posted by: Samuel Knight on September 22, 2006 at 1:49 PM | PERMALINK

Perhaps it is mere coincidence. Perhaps it is some big conspiracy by Big Oil, the hedge funds, and Bush's friends in Saudi Arabia. But the point of Tobias's perhaps cynical and paranoid post is that just as Bush is blamed when the prices go up, he'll be praised by the conservative spin machine for the recent (and continuing?) drop in gas prices and a mere 1 or 2-pt increase in favorable ratings for Bush--and by extension the GOP--could well decide a couple of those superclose Congressional races.

And call me cynical and paranoid but I fully expect gas prices to start going up again right after election day. Gotta pay for those winter heating bills, ya know. :)

Posted by: Catcher on September 22, 2006 at 1:50 PM | PERMALINK

I would disagree with Mr. Drum regarding the manipulation of gasoline prices by large petroleum corporations. Prices went up sharply and dropped sharply, yet almost no changes took place in either supply and demand in the past six months. To me, that indicates market manipulation.

The reason why the market manipulaton occurred may be in dispute. Is it the election and the petro industry wants to protect its political machine? Does the petro industry want to inhibit demand for greater fuel economy, conservation and alternative fuels? Does the petro industry want to prevent a world wide recession?

It is probably a combination of all three reasons why the petro industry has allowed the price of gasoline to fall in the US. My father, a Goldwater Publican and corporatist, says it is because more refineries are back on line.

Has the price of gas fallen world wide or just in the US?

Posted by: Hostile on September 22, 2006 at 1:53 PM | PERMALINK

Brendan was a victim of the Liberal Thought Police!

Posted by: Al on September 22, 2006 at 1:53 PM | PERMALINK

Let's never speak of Bandhar Bush again...right...

Posted by: Mumon on September 22, 2006 at 1:53 PM | PERMALINK

A large part of the increase in crude oil proces over the summer was also the "terror premium," that is the fear of something like war with Iran or something that would choke off supplies, and also the "hurricane premium." These led to a lot of speculation, but seem to have abated. Falling crude prices are the chief cause of falling gas prices. A strike on Iran would send oil back up to at least $80. So far so good on the hurricanes, but I recall one that hit in late October.

I don't think it is manipulation by Bush or the oil cos. The oil cos don't want prices too high or else it makes alternatives too attractive, but neither do they want them too low. The only manipulation I can see is perhaps a little more willingness to pass drops in crude onto the customer.

Posted by: Mimikatz on September 22, 2006 at 1:55 PM | PERMALINK

Okay, count me as skeptical when it comes to conspiracies, just because I've worked in and with large organizations and government pretty much my entire life, plus got a PhD in organizational decision-making on the side, and I'm surprised that some organizations can find their metaphorical ass with both hands, much less pull off coordinated and complicated market manipulations.

BUT ...

Let us keep in mind that we're talking about manipulating GASOLINE prices here, not oil prices. And while oil prices are indeed subject to many diverse factors and actors, the forces that set gasoline prices -- oil price among them -- are MUCH more limited.

Moreover, while oil prices may set a FLOOR for gasoline prices, they do not affect the CEILING. The oilcos may not have much control over the impact of world oil markets on the prices they set, but they certainly control the MARGIN they get.

And retail gas prices really are very heavily influenced by oilco marketing decisions. Many stations are owned outright by the oilcos, who thereby can set retail prices directly. Other stations must buy wholesale from the oilcos and are subject to very intense competition (everybody knows which station is 5 cents cheaper), so their freedom of action is very limited, and thus their prices likewise are heavily subject to oilco marketing decisions.

So it ain't quite as tinfoil-hattish as you might think. The scenario is this: oilcos have been gouging about as hard as they could for a while. They got a little breathing room from the crude markets, and they decided not to keep the needle pegged. A part of their (very sensible business-oriented) decision was political calculation: let's invest a little bit -- not much -- to improve the chances of the guys in Congress who are so well-disposed toward us, since it'll pay off handsomely if it works.

I think for the same reason, we are UNLIKELY to see overt military action against Iran until very late in the election season. If we bomb, oil prices will spike, gas prices will rise, and people will freak. Best to wait until the last few weeks -- mid-October or later -- before springing that on the American consumer.

Posted by: bleh on September 22, 2006 at 1:56 PM | PERMALINK

Gas prices will spike again, probably right after the New Year, despite little change in supply and demand. This will also indicate the current falling prices were manipulated.

Posted by: Hostile on September 22, 2006 at 2:02 PM | PERMALINK

Crude prices had their run-up a couple of months ago because it looked like there were strong possibilities of supply disruptions heading into Autumn, with the Lebanon War and a severe forecast for Atlantic hurricanes. Well, the Lebanon War burned out rather than spreading into a regional confrontation (or a 1973-style oil embargo), and it's been a much quieter hurricane season than predicted. Now that the predicted (and priced-for) supply disruptions have failed to materialize, it's no surprise that oil and gas prices are falling. Mix in the usual end of Summer travel season, lower energy demand (as A/Cs get less use but heating oil has yet to get purchased), and the swtich over from expensive Summer blends of gas, and you see the prices nosedive like they have. Happens every year.

Posted by: FMguru on September 22, 2006 at 2:02 PM | PERMALINK

From last week's President's Address to the Nation, comes a reference to the 23rd Psalm. What does this specific fairy tale say?

... Thou anointest my head with oil; My cup runneth over. ...

No wonder his poll numbers have gone up recently.

And then Bush said this:

"We look to the day when the nations of that region recognize their greatest resource is not the oil in the ground, but the talent and creativity of their people."

Translation: Your oil will become mine, all mine.

Posted by: wht on September 22, 2006 at 2:12 PM | PERMALINK

Oh, the Saudis have no means of influencing or manipulating the spot market for crude to help their business partners, the Bush Crime Family, keep their stranglehold on the US government? Is everybody truly that naive? Wake up people, the wolves are sharpening their knives all the while they are fattening you up...

Posted by: c4logic on September 22, 2006 at 2:12 PM | PERMALINK

Ummm.. yeah. Its ridiculous to imagine that the largest oil user in the world, closely allied in many proven nefarious ways with the largest oil producer in the world, could possibly control oil prices. Ridiculous. Especially when the administration is filled with oil men closely associated with the ruling family in Saudi Arabia - they would never, ever do something that could hurt the commodity that loves them so much.

The math works out to about 3 cents per gallon of gas per dollar of a crude barrel. Then add taxes That's the natual deflection, though it could possibly be a bit less.

What sets the cost of crude oil? Is it a fluctuating cost of production? No. While old fields do become less efficient, the cost of extraction changes only incrementally compared to the actual cost of crude.

Does supply and demand drive crude prices? No. The is still more supply available than demand. When there are places that can't get oil or oil products because there isn't enough, then you can point to supply and demand. Right now, everyone gets all the oil and energy they need.

Commodity speculation drives crude prices. And who is doing the speculation? Could it be... I don't know... SATAN?!! Worse. Its consortiums of oil companies and oil users, and guys richer than most countries with close ties to the oil industry.

This is why Chavez gets to provide cheap oil - he simply doesn't open that oil up to speculation, but charges some medium between what it costs to produce and what the market is overcharging for it.

It is crazy /not/ to think these guys manipulate the market. You can look at oil company revenues to see it - their profit per gallon of gas sold has gone up proportionately, but their profit per barrel of crude has skyrocketed.

Look at what Kraft did to the milk and cheese markets back in the 70's and 80's, almost entirely by itself, even though it only used a portion of the actual commodity.

Posted by: Mysticdog on September 22, 2006 at 2:13 PM | PERMALINK

And while it's possible that American oil companies and hedge funds have somehow conspired to manipulate the entire global oil market over the past couple of months in the service of Republican victory in the upcoming midterm elections, it's not very likely.

Um, what? Who thinks that?

How about substituting "the Saudis" for "American oil companies and hedge funds", and you're much closer to something that is at least plausible.

Remember, bin Laden is a Saudi, and Bush let the bin Laden family skate after 9/11. Bush is an oil guy, and his family's power comes from its relationships with the Saudis, who are the swing producers.

So is it at least possible that the Saudis are pumping like mad to drive the price down in the short term? yes. Is it possible that Bush is selling oil from the federal reserve to drive the price down for a few weeks? yes

Is it happening? I don't know. But it's not at all crazy to think so.

Posted by: craigie on September 22, 2006 at 2:19 PM | PERMALINK

An unprovable point, but I remember all through the summer of 04, here in Arizona it was like an invisible hand was keeping gas prices down, in spite of everything going on in Iraq, Iran, the Sudan, Nigeria, Venezuela and Saudi Arabia.

Posted by: bcinaz on September 22, 2006 at 2:25 PM | PERMALINK

I see Kevin's unleashed his inner Sensible Liberal again. What a shock.

Posted by: Reprobate on September 22, 2006 at 2:28 PM | PERMALINK

Check Jim Kunstler's "wild hair" over at Clusterf*ck Nation:


If there is demand destruction in the US, it has not shown up yet in the overcooked and overspiced statistics emanating from the federal agencies -- though the housing slump-or-crash-or-whatever is beginning to make an impression on economy-watchers. There is otherwise no evidence that fewer cars are clogging the Capital Beltway or the Santa Monica Freeway.


But here's one thing I wonder: what if the number one user of oil products in the US had laid in huge inventories of the stuff earlier in the year and has lately withdrawn from bidding in the futures and spot markets? I am speaking of the US Military. It would make sense, against the background of Iran rattling its nuclear capabilities, and the Israel / Hezbollah affair, that the US armed forces filled their tank farms to the max this summer and are now stepping back from bidding on any additional oil for the time being. This could be easily "managed" by the people who run this massive organization -- namely, the President, the Secretary of Defense, and the rest of the civilian authorities based in the executive branch of the government. They don't have to consult with congress on their oil purchases.


I apologize for veering into conspiracy territory on this -- and I don't have a shred of evidence that this is happening. It's just a thought, a caprice, a "wild hair," a theory. Surely there is some enterprising graduate student or trust fund nerd on the peak oil web sites who might investigate this dark notion. Has the US military gone on an oil-buying vacation as we head toward the elections?

Posted by: bgno64 on September 22, 2006 at 2:29 PM | PERMALINK

Re: can the oil companies rig a global market...well, yes, considering that there are only a handful of them and the major oilfields are controlled by Bush's chummies the Saudis, it is possible. Now I would really like to see what teh OPEC have decided amongst themselves, colluding with the oil companies.

Posted by: Carol on September 22, 2006 at 2:31 PM | PERMALINK

So the drops in prices across these various markets...they're due to what?

Speculators taking profits?

Things in the Middle East settling down (doubtful)?

Some decrease in demand, obviously, but a 15% decrease in demand (also doubtful)?

Has anyone seen a trend chart on oil demand for recent months?

Posted by: GMF on September 22, 2006 at 2:33 PM | PERMALINK

Is it happening? I don't know. But it's not at all crazy to think so.
Posted by: craigie on September 22, 2006 at 2:19 PM | PERMALINK

recall in the past month, we've had news reports of a "massive find" in the Gulf of Mexico, and the Saudis proclaimed that the world is only 18% through it's total reserves.

Both of these are wild and unprovable assertions - and there's reason to believe the converse. (in fact, the Saudis have been caught lying about their reserves many times in the past). But there is clearly some kind of marketing campaign being orchestrated for a temporary easing of fears on oil supply, reflected in a corresponding drop in prices.

Posted by: Osama_Been_Forgotten on September 22, 2006 at 2:35 PM | PERMALINK

bleh is probably the one closest to reality

Anyone here in the oil bidness ?

I thought not from the absurd responses most of the rest of the commentators posted

Want to know what some professional oil folks think ?

Then, to begin finding out, click on over to The Oil Drum & see that, in general, pros tend to agree with bleh

Of course I won`t be holding my breath thinking that a majority of you will head over there to actually expose yourself to professional opinion on this matter since refusing to face the possibilites of collusive crony corruption is soooo much more comfortable & fun

As pebird suggested, the Enron case shows how shallow and uninformed about real world behavior most of you desire to be despite the evidence displayed day in and day out by the fratchildren currently in power

Time to move your minds out of junior high mode

"Proof depends on who you are. We're looking for a preponderance of evidence, and some people need more of a preponderance than other people." - John Kantner

Posted by: daCascadian on September 22, 2006 at 2:36 PM | PERMALINK

"over the past six weeks the global price of crude oil has decreased 18%"

In the last 6 weeks gas prices have droped one dollar, that's 30% not 18%

Maybe Bush got on the phone, like he promised, and ask Saudi Arabia to bump up the production or the Petrocrats would lose their monopoly on power in the United States. They may have been planning this and stocking up short term only to release surplusses right before the election.

It doesn't take that much for a cartel to manipulate the price - all the movement occurs along the margins.

Then again, maybe Chavez could withhold production temporarily.

Posted by: Bubbles on September 22, 2006 at 2:41 PM | PERMALINK

given lower geopolitical tensions in the area

Huh? Is is just me or have tensions with Iran not increased in recent weeks?

Posted by: Edo on September 22, 2006 at 2:42 PM | PERMALINK

I tend to not be a believer in conspiracy theories, but I am also not a fan of coincidence. Election coming, and suddenly gas is dropping toward the $2 a gallon mark. Then I read this quote from Bush in a Fred Barnes report:
"Bush predicted Democrats won't win either the House or the Senate. "I believe these elections will come down to two things: one, firm belief that in order to win the war on terror there must be a comprehensive strategy that
recognizes this war is being fought on more than one front, and, two, the economy." Bush said the price of gasoline, which has been falling rapidly, is one of the "interesting indicators" that the press should watch carefully. "Just giving you a heads up," he added"

The 'press should be watching", and just giving you a "heads up". The only thing Barnes did not indicate was whether Bush was giving him a little wink as well.

Posted by: vpanone on September 22, 2006 at 2:45 PM | PERMALINK

vpanone >"...The only thing Barnes did not indicate was whether Bush was giving him a little wink as well."

This whole bit might be tagged "telegraphing a reach around"

"You see what power is - holding someone else's fear in your hand and showing it to them!" - Amy Tan

Posted by: daCascadian on September 22, 2006 at 2:52 PM | PERMALINK

The end of the summer driving season accounts for a bit of this

Does the summer driving season actually exist?

Posted by: scarshapedstar on September 22, 2006 at 3:00 PM | PERMALINK

Oh yeah, oil has nothing to do with George Bush, my ass.

Strange how the price of oil goes down just before the Christmas holidays too, just so retailers don't scream about the worst holiday profits ever, and thus might cry for cost control measures.

It just shows you that there really is NO peak oil scenarios. I mean really, now that Iraq is falling into civil war faster than the James Baker commission can't tell TV viewers that the next three month in Iraq are critical, pray where is the usual speculation of gasoline prices, and We even have Iran failing to meet Bush's expectations and talk of Bush planning something.

And wasn't oil about $2.00 before Katrina hit about this time last year, so there is still gouging spikedom. It just stands to reason that winter should be the more expensive season with the cost of home heating and holiday traveling. I've often heard winter heating cost sited by the OIL companys as reasons for the increase in the price of gasoline.

And oh, gasoline prices came down before last election as well. As evidence has repeatly shown, there is corruptions in pricing and services render with every single thing Bush touchs, from contracts awarded in iraq, to Halliburton, and it's within EXXON/Mobil too.

Posted by: Cheryl on September 22, 2006 at 3:02 PM | PERMALINK

I'd agree wiht Kevin's skepticism, expect we've seen a DRASTIC fall in gas prices over the past few months. In late mid to late summer here in NC we had prices pushing $3.10/gal. Now gas is close to $2.20/gal That's almost a 30% reduction. Not 16%. Big difference.

I have never seen gas fall so sharply after Labor Day.

So, sure, I think the end of summer is causing some portion of the drop like always. But I still think it is WAY too convenient for the prices to have spiked SO high and to have fallen SO sharply just in time for November. Remember - the gas supply is tight enough that even regular refinery maintenance at a few facilities can spike prices.

Is there a conspiracy? Who knows. I ten dot be a conspiracy skeptic, but in this case.... WOuldn't surprise me a bit - think California energy crisis.

Posted by: NC Dem on September 22, 2006 at 3:13 PM | PERMALINK

The Bush Adminsitration seems to have ratcheded down their rhetoric vis a vis Iran, and that appears to have helped ease speculative buying and contributed to lowering prices, which I consider to be a form of market manipulation.

Posted by: Pocket Rocket on September 22, 2006 at 3:26 PM | PERMALINK

So, how do oil prices move, historically, before and after U.S. elections?

Posted by: ferd on September 22, 2006 at 4:21 PM | PERMALINK

It's so much more fun when you theorize conspiracies. Hell, at least question the timing.

Buy long on tin foil.

Posted by: Birkel on September 22, 2006 at 4:34 PM | PERMALINK

Everyone knows Karl Rove controls the oil prices. He controls everything. In fact, Kevin's post was really written under mind control from Karl Rove. ;)

P.S. Thank you Kevin for being a reasonable liberal.

Posted by: ex-liberal on September 22, 2006 at 5:42 PM | PERMALINK

Oh, ye of little faith. The master Rove has powers you can't concieve of here in your petty little blog.

Posted by: minion of rove on September 22, 2006 at 5:52 PM | PERMALINK

Oh, ye of little faith. The master Rove has powers

Yak, yak, yak, more hot air from stuffy punks

I just thought I would let the sleeze really come out of the closet before I brought the final hammer down so everyone would know who the real bad guys are

Posted by: GOD Almighty on September 22, 2006 at 5:58 PM | PERMALINK

My contempt for Bush remains inelastic compared to the price of gas.

Posted by: plane on September 22, 2006 at 6:09 PM | PERMALINK

O pulleeze. If that's such a common saying in the press, why haven't i heard it yet. More likely he's debunking a straw man.

As for the idea that world oil prices affect what you pay at the pump, the next time it's necessary they will patiently explain to you that the gasoline at the pump was made weeks or months ago, and that the price of a barrel of oil that hasn't even left Saudi Arabia has nothing to do with the price at the pump.

Enjoy it while it lasts, 'cause it ain't gonna last forever.

Posted by: serial catowner on September 22, 2006 at 6:10 PM | PERMALINK

The real price of oil is the destruction of the Earth's capacity to support life.

How much is that worth to you at the pump?

Posted by: SecularAnimist on September 22, 2006 at 6:12 PM | PERMALINK

in armed madhouse greg palast said that the only times the saudis have ever produced to their limits was prior to the 2004 elections and prior to the 2006 elections. i have heard only one vague reference to this; someone on cnbc, while commenting on opec mentioned that the saudis were the only ones currently producing over their quota.

Posted by: harpo on September 22, 2006 at 6:56 PM | PERMALINK

while oil prices may set a FLOOR for gasoline prices, they do not affect the CEILING.

bleh is correct; crude oil makes up about 50 cents of each gallon of gas. If crude falls 18% that translates into approx a 3% fall in gas prices; gas has fallen 16% in the US? So that means about 13% of the fall of domestic gasoline prices cannot be attributed to falling global oil prices.

Now, does that make it easier for you to imagine an election-time conspiracy?

Posted by: Disputo on September 22, 2006 at 7:10 PM | PERMALINK

did the Saudi oil minster say last week that only 18% of oil in the ground has been used?

that is odd statement for someone who should want the price of their product as high as possible -

Posted by: smartone on September 22, 2006 at 7:26 PM | PERMALINK

This is an off topic public announcement:

rmck1/Bob a sock puppet? You decide.
WARNING: this shit is WEIRD.

1. Evidence rmck1 is a SockPuppet

2. Chris' words touch me...

3. rmck1 almost admits what he did

4. The panic of rmck1


BONUS: rmck1/Bob reads this post...

Posted by: Public Service Announcement on September 22, 2006 at 7:33 PM | PERMALINK

"over the past six weeks the global price of crude oil has decreased 18%"

In the last 6 weeks gas prices have droped one dollar, that's 30% not 18%

Here in Minneapolis gas was $3.27 in August. Then I heard about some massive oil pipeline spill in Alaska and the billions it was going to cost them to repair/update the pipeline and thinking, "Well, get ready for another round of rising gas prices." Yet now, only weeks later, gas is at $2.17. (That's not an 18% drop, that's a 33% drop)

Maybe it's about the election, maybe it's to get everyone to forget about the problems with the pipeline in Alaska while they push for more drilling in a national wildlife refuge. Or maybe both?

Posted by: Thumb on September 22, 2006 at 8:08 PM | PERMALINK

In the oil industry there is no such thing as coincidence.

Posted by: James on September 22, 2006 at 8:11 PM | PERMALINK

Thomas1/GOP/Charlie/etc certainly has a hard-on for Bob.

Unrequited love sux.

Posted by: yeah right on September 22, 2006 at 9:02 PM | PERMALINK

Although it is true that there is normally a steep drop in gasoline prices in the fall caused in part by refining issues and the end of the "driving season" (yes it still exists). The price of gasoline is easily and frequently manipulated (imho) Independant Dealers count on the fall drop to make what paltry profit they can (i.e. they hold the price up as long as they can, which is not very long to make some margin)but they don't really control the price.

The reality is that gas is gas, it is fungible, it comes out of the same pipeline or tanker and is refined at the same refineries regardless of brand. The gasoline industry is essentially one company "upstream" so there is no competition, or competitive advantage, anywhere along the line and no rational basis for the price at Texaco to be different than the price at BP. Consequently the question is not how would they manipulate gas prices but how could they, assuming they wanted to, differentiate gas prices when they share infrastructure and consequently basic cost structure?

The oil Cos get actual real time telemetry on every gas station they supply and can, and I assume do, track prices in real time for supply purposes. They also impose pricing discipline on their Dealers very strictly and have complete control of the Dealers cost.

With mergers and offshore affiliates it is quite easy to draw all of the profit "offshore" so there is very little domestic retail margin and hence very little room for competition.

There is almost always some type of "problem" in late August, refining problems, pipeline problems, mix problems, you name it, that results in slowing the drop in prices in the fall. Maybe its a coincidence?

My personal guess this fall is that something else is up, and I don't know what, I thought Prudoe Bay was the annual supply scare, but published reports trying to debunk peak oil, reports of over reserve etc. suggest that somebody has been squireling away alot of gasoline and crude over the past year and somebody, perhaps the same somebody but perhaps not, now wants the price down. Similarly there has been a drop in NG which is inexplicable as the LA Gulf is not close to back at full production and NG is more regional than crude.

Posted by: mlaw230 on September 22, 2006 at 9:57 PM | PERMALINK

I doubt that oil companies could conspire to create the 'perfect storm' that is leading to the lower gas prices.

1. Everybody kept their inventories maxed this summer due to uncertainty regarding the hurricane season.

2. Retailers are switching to the winter blend around this time of year.

There's an excess of local supply available, and I don't think it is the result of a conspiracy.

I would expect to see a rise in the price of crude sometime before the end of the year, possibly as high as $80/bbl. We're in a period of stability now, but I'm not sure how long it can last unless prices go up higher (And it's got to get a lot higher if anybody is going to drill in the deep LTGOM.) New fields will be expensive as hell to develop, and now everybody wants a premium price on their old fields with decling flow rates.

Posted by: Tuna on September 22, 2006 at 10:56 PM | PERMALINK

I agree with that, the DVN discovery has got to be at least 10 years out, and the cost is going to be huge. But it would seem that the winter blends would cause an uptick and competition with heating oil production.

It may be there has been a lot of spec. with ME problems, but one would think that the Iran situation would raise greater concern. After all the Iraq reserves have been off the market for over 12 years for the most part. So the syria/lebannon situation was not a big threat and Iraq alone would not account for much upward speculation.

You may be correct that the bigger concern was potential hurricanes effexting the teminals in LA from the GOM and Venezuala. Who knows? Nevertheless, Big Oil does manipulate the price on the street, which is not to say that basic economics doesn't have the greater influence.

Posted by: mlaw230 on September 22, 2006 at 11:34 PM | PERMALINK

Simple solution is to build coal liquification plants that can double as biodiesel production plants. The United States has tons of coal. Use quotas and tariffs to ban imports of oil.

The cost is about $1 billion per refinery to build but its product cost $1 a gallon at the pump.

We've spent $500 billion in Iraq to protect middle east oil supolies that only go to fund the terrorist and tens of thousands lie dead, tens of thousands are wounded, and thousands of American lie dead.

With that $500 billion we could have built 500 coal liquification plants. That money and the money spent on oil would all stay here in the United States and would help rural areas rebound. And the best part is no American would have had to die for it and we could have kept our eye on the ball in Iraq.

The petroleum oligopoly is an axis of treason.

Posted by: Bubbles on September 23, 2006 at 12:16 AM | PERMALINK

How about prices were artificially high by 15% this summer?

Posted by: price fixing on September 23, 2006 at 1:27 AM | PERMALINK

Kevin,
You probably can find many other factors coincidental to Bush's poll numbers. But how many of those factors like rising instability in the Middle East are related to Bush's war in Iraq and his other Middle East policies? I'd rate all of this as strongly correlated and not merely coincidental.

The NYT has an article this morning showing that sales of pickups and SUVs are not responding to the drop in gas prices. The gist is that consumers know this price drop is just a temporary blip. Consumers are betting their wallets on a higher probability of $4.00 per gallon gas than continued $2.00 per gallon gas.
Can we make a comparison with the vehicles consumers are purchasing with whom they will cast their votes on election day?

The reality is simple. The people have lost so much faith in their government as a result of Bush' and the Republican congress' incompetence and malfeasance coupled with the huge profits made by the oil companies during the price rise of oil that they are now naturally inclined to link these drops in prices with a manipulation of the market to impact the elections.

So rationalize the THIRTY PERCENT decrease in the price of gas anyway you want.

Posted by: lou on September 23, 2006 at 7:59 AM | PERMALINK

(I can "explain" 62 percent of the variance in Bush approval using a variable that just counts the number of months he has been in office).

I'm not so sure this isn't the actual cause-effect relationship in play.

The longer you know him, the less you like him. I know a few people like that.

Posted by: Brautigan on September 23, 2006 at 8:57 AM | PERMALINK


"Oil has fallen to $60 a barrel. Experts predict it will continue to fall until exactly one minute after the polls close on November 7th."

Posted by: Jay Leno on September 23, 2006 at 9:37 AM | PERMALINK

What else has changed in the past six weeks?

Iran seems to have cooled off somewhat as an international affairs concern; Nigeria very much so. Iraq, perhaps the level of violence is getting factors in more as part of the cost of doing oil biz.

And, Big Oil may be bullish enough about the recent deepwater GOM finds for this to be a factor, too.

Posted by: SocraticGadfly on September 23, 2006 at 11:48 AM | PERMALINK

What's really interesting is WHERE the gasoline prices have fallen the most. According to the data I reviewed, it's Columbus, Ohio that has that honor...

Posted by: wasabi on September 23, 2006 at 2:10 PM | PERMALINK

Should we be surprised that BushCo would get with it's buddies in Saudi etc., to move the price of oil down (i.e, keeping supply up)? The Saudis etc. know that if Repubs get elected in 2006, conservation efforts will be stymied and OPEC will have a bigger market for a long time. It's a damaging (for the world) symbiosis.

Posted by: Neil' on September 23, 2006 at 5:11 PM | PERMALINK

I'll see your "coincidence", Kevin, and raise you fifty cents at the pump in January.

Posted by: m on September 23, 2006 at 8:41 PM | PERMALINK

``I suspect this needs to be marked down as coincidence, not conspiracy.''

Wake the F**K UP! Bandar Bush may be quiet, but he ain't dead.

The Saudis are dumping oil in to the market. The SAME THING happened in 2004, or have you forgotten this?
(from democracynow.org)

``The White House and a top Saudi official are denying allegations that before the invasion of Iraq, the Bush administration made a secret deal with Saudi ambassador Prince Bandar bin Sultan involving oil price fixing ahead of the November presidential elections. [includes rush transcript]
The charge came in an interview Sunday on 60 Minutes with Washington Post journalist Bob Woodward. His new book Plan of Attack hit news stands yesterday and has already caused a firestorm of controversy. Here is an excerpt from 60 Minutes Host Mike Wallaces interview with Bob Woodward.


WALLACE: Prince Bandar enjoys easy access to the Oval Office. His family and the Bush family are close. And Woodward told us that Bandar has promised the president that Saudi Arabia will lower oil prices in the months before the election to ensure the US economy is strong on Election Day.
And you also say, 'Bandar wanted Bush to know that the Saudis hoped to fine-tune oil prices to prime the economy in 2004. What was key, Bandar understood, were the economic conditions before a presidential election.'

Oil prices are at an all-time high.

WOODWARD: They're high, and they could go down very quickly. That's the Saudi pledge. Certainly over the summer or as we get closer to the election, they increase production several million barrels a day and the price would drop significantly.

Posted by: secularhuman on September 23, 2006 at 9:34 PM | PERMALINK

Kevin,

You should remove the gray background from your Excel graphs. Trend lines will pop out at the reader better without it.

Posted by: Steve Sailer on September 23, 2006 at 10:01 PM | PERMALINK

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