THE DENVER POST: Politics, gasoline prices linked?

Some cry ‘conspiracy’ as cost per gallon drops before election

Sunday, November 05, 2006
Steve Raabe
THE DENVER POST
 
A few days until elections, and gasoline prices are down 83 cents a gallon from their record high in August.

Coincidence or conspiracy?

Economists and financial analysts scoff at the notion that anybody has the power to manipulate the complex petroleum industry.

Falling gas prices, they say, are a consequence of market factors: lower crude oil costs; a seasonal decline in demand; and speculators bailing out of petroleum investments.

Oil futures on the New York Mercantile Exchange closed Friday at $59.14 a barrel, down sharply from the record high of $78.40 on July 14.

While 53 percent of the American public don’t subscribe to the conspiracy theory, 42 percent say they think that the Bush administration has helped jigger fuel prices to benefit Republican candidates, according to a September USA Today/Gallup poll.

“This market is driven by fundamentals,” said Jason Schenker, an energy economist with Charlotte, N.C.-based Wachovia Corp. “I’m very loathe to buy into these (conspiracy) arguments. To think that the Republican Party can influence gas prices is giving it far more power than it deserves.”

But such a notion wouldn’t surprise Denver investment manager Peter Forbes, recently filling the tank on his black Lexus SUV with $2.14 regular.

“Is Big Oil being manipulated by big government?” Forbes wondered. “I wouldn’t doubt it at all. It’s tough to prove, but the timing sure is convenient.”

Gasoline prices have fallen before federal elections almost every year since 1990, which energy analysts attribute to falling demand after the summer driving season. Most of the declines have been 10 cents a gallon or less.

But this year’s drop from June to the week before the election has been a comparatively steep 58 cents. Analysts say the larger decline is because oil prices spiked to record highs earlier this year on fears of geopolitical supply disruptions and the lingering hangover from last year’s hurricane-related supply disruptions.

The price trend is not as consistent in nonelection years. Since 1991, prices in June-through-November periods that don’t precede elections have fallen five times and risen three times.

The widely discussed conspiracy theory, a staple in blogs and talk radio, holds that oil companies and their Republican allies in government are playing the market to bring prices down and make voters more inclined to keep Republicans in control of Congress.

Falling fuel prices already are credited with helping President Bush’s approval ratings on his handling of the economy. In a Wall Street Journal/NBC News poll last week, 46 percent of voters approved of his economic stewardship, up from 39 percent in June.

“Yeah, I think it’s probably due to the election coming up,” said Denver probation officer Jerald Mason, filling up recently at a 7-Eleven. “After the election, if the Republicans stay in office, then the prices will come back up.”

While the conspiracy theory has several variations, it mostly centers around these allegations:

• The Saudi Arabian government, a longtime friend of the Bush family, is keeping oil production high to force prices down and bolster the U.S. economy.

Nonconspiracy response: The Saudis no longer have enough spare production capacity to significantly boost oil output and affect prices. To the extent they can, it’s to smooth out volatility in world oil pricing, not to help U.S. Republicans.

• American oil refiners have lowered their profit margins, one of the key factors that determine retail gasoline prices. Margins are down from 45 to 50 cents a gallon this past summer to about 7 cents this week.

The nation’s top five oil companies — Exxon Mobil, BP, Royal Dutch Shell, Chevron and ConocoPhillips — own 42 percent of U.S. refining.

Nonconspiracy response: Refining margins on gasoline are seasonal and almost always go down in the fall as demand for gasoline drops.

• The Bush administration is secretly selling oil from the Strategic Petroleum Reserve, glutting the market and pushing prices down.

Nonconspiracy response: According to the Energy Department, there have been no additions or withdrawals to the reserve from May to September.

• Newly appointed Treasury Secretary Henry Paulson Jr. has leaned on his former partners at Goldman Sachs to sell gasoline futures, a move that would lower prices. Goldman Sachs operates a commodities index widely followed by energy traders.

Nonconspiracy response: Paulson said he cut all ties to Goldman Sachs when he was named to the Treasury.

The allegations produce a mixture of smirks and indignation from nonconspiracy theorists.

One of them is Lori Weigel, a Denver-based partner in Public Opinion Strategies, a Republican national polling firm.

“I find the premise of the (conspiracy) question insulting, as a Republican,” Weigel said. “It’s rather ridiculous that Republicans would be manipulating gas prices or that we would even have the power to do so. If they did, I don’t see why in the hell they would have let it get to $3 (a gallon) in the first place.”

Simple supply and demand fundamentals and seasonal variations explain why gasoline prices have dropped, said Steve Douglas, Greenwood Village, Colo.-based general manager of supply and marketing for refiner Suncor Energy USA.

“It’s free-market economics,” he said. “If elections were held in June, people would likely notice that prices tended to go up just before an election.”

Filling up recently in Denver, retired Department of Education employee Charles Hansen said he’s not ready to buy into the conspiracy theory.

“I worked in Washington for 30 years, and I really have to discount that stuff,” he said. “I have to assume it’s market pressures. I don’t really understand how the market works, but I’m just glad to see the prices come down.”