Saturday, September 16, 2006

Gas Prices -- Where are they Going?

Liberalism is, I think, resurgent. One reason is that more and more people are so painfully aware of the alternative.
John Kenneth Galbraith, 1908-2006, economist

I have been saying ever since gas prices started coming down and not jumping back up in time for Labor Day that there is some connection to the upcoming mid-term elections. Some how the market is being manipulated, at least from my perspective, because if a hurricane strikes or a pipeline breaks that is an excuse to raise prices -- immediately.

Jay Leno once joked oil companies raise the price of oil after any mishap faster than one gets gas from a bean burrito.

My prediction is gas prices will again climb to more than $3 a gallon after the election no matter who wins, oil companies tend to support the Republicans because they believe in the Darwinian theory of capitalism.

However, Dr. Steven Taylor over at Poliblog (where I check in for his take on political events) doesn’t agree with me, and he makes a valid point, but I believe there is some collusion, and maybe OPEC is involved. I left a comment under one of this posts and here is his response, which makes sense, so if anyone has an answer or a theory I'd like to hear it, maybe my friend at Anything They Say will have an answer.

Dr. Taylor’s reply:
...The price of oil is determined by the commodities market, and that isn’t just driven by the oil companies–it is driven by traders.

Explain to me how the administration or the oil companies are able to manipulate the price of barrel of oil on the commodities market.

And, if they can, what would be their motivation for doing anything except keeping prices high?

You might argue that the GOP is good for business, but if they can manipulate the oil prices at will, why would they care about which party is in charge.

Further, the argument is predicated on the notion than an administration that is supposedly inept is somehow simultaneously hyper-powerful. That doesn’t tack.

And you know that I am not an auto-booster for Bush.
Comment by Dr. Steven Taylor — Friday, September 15, 2006 @ 8:42 pm under a Thursday post titled $2.27


theBhc said...

Hi misanthrope,

I post a reply to your comment at my site but I'll link it here too.

The argument or suspicion that oil companies are fixing the price of oil is a partial redherring. It is true that world trading sets the price of oil, but that is not what Americans respond to. Americans respond to the domestic price of gas, which is tightly controlled by the oil companies. And as I argue in the piece below, pump prices and oil prices are loosely coupled.

Winds of November

The Misanthrope said...

Ahh, thank you thebhc. I somehow missed that post.

Janet said...

This is an interesting theory, tying gas prices into upcoming elections.

But then again, it all connects eventually, doesnt it?:(

Steven Taylor said...

I think it is rather difficult to argue that the price of gas is only loosely connected to the price of gas.

To wit: the precipitous fall in gas prices the last couple of weeks has been preceded by a fall in the per-barrel price of oil.

There are other factors involved in determining the price of a gallon or gasoline, to be sure. But to argue that the per-barrel price of oil isn't central is rather problematic.

Crude oil is the main ingredient in gasoline, and therefore the variable that affects price the most.

Janet said...

What do you mean swap posts? I'm confused.:(

The Misanthrope said...

Janet, I do think it's all connected somehow. By swap posts I meant that you should guess blog here and vice-versa.

Dr. Taylor thank you for your comments, it allows me to keep an open mind.

theBhc said...

Dr. Taylor,

As my piece argued, the price of gasoline, while not entirely disconnected for world oil prices, does not necessarily track the fluctations of the oil market. To wit, since 2002, the price of oil has more the tripled while gasoline is now double or less what it was in 2002. Furthermore, in the immediate aftermath of Katrina, world oil prices hit a record (at the time) of $69/bbl, which was only a small percentage increase from pre-Katrina levels. Gas prices, especially in the local regions, doubled, tripled and in some place quadruple when supplies were short and refining capacity had been severely hit. In the year since Katrina, oil prices continued to climb to ever higher levels, while domestic gas prices actually dropped.

Obviously, oil prices affect the price of gasoline, but they are not strongly coupled. Oil companies do take mitigating steps and moderate gasoline prices in the US. After all, they don't want Americans to stop using it by pricing it beyond an acceptable level, although it is entirely unclear what the level is in this country. Close coupling would suggest $4+/gal gasoline compared to the 2002 price.

Gas prices can be and are controlled by US oil firms and they are able to do this because their primary source of profit is not domestic gas prices in the US but the price of oil on the world market.

The Misanthrope said...
This comment has been removed by a blog administrator.
The Misanthrope said...

Now this is a group I would like to have over for dinner. We can add Bitch Ph.D and Jack from Jack's Random Thoughts, Alice from Uptown, B2 and On the Mark, naturally. Dr. Taylor might be a bit out numbered, but it would might for some wonderful discussions

Steven Taylor said...

Here's more, which I would argue bolsters my position far more than The Bhc's: click

theBhc said...

You probably knew I couldn't resist.

My response to Dr. Taylor:

Re: Those Darn Gas Prices

The Misanthrope said...

My thanks to thebhc and Dr. Taylor for a great discussion. The debate continues at their respective sites and I highly encourage everyone to read both sides and make your own decisions.

Unknown said...

I guess I am late to the party, but my view and frankly, I don't care if anyone buys it or not is:

The Oil Industry uses any political, meterological, manufacturing,pipeine blunder or OPEC move to justify upping or lowering the price. Its not like anyone can call them on it. The winter will be forcast to be colder or anything else they wish to bs us about and thus the prices will go up after the elections.

Bear in mind I am not an economist, and merely a left wing nutjob.