Oil and the Elections

Not that I'm a conspiracy theorist or anything, but long before the election I was saying that if I was the Republicans, I'd call in every favor I needed to with OPEC countries, oil companies, refineries, and a sub rasa deal with Hugo Chavez in order to bring gas prices down by the time of the election.1 I would even release some of the strategic oil reserve if need be.

It turns out that the Strategic Oil Reserve wasn't needed, but the oil price drop sure did come in like a freight train. Here are crude oil prices for the past few months. Notice anything... interesting?



Beginning in August, oil prices took an unprecedented and ahistorical dive (non-recent election year ahistorical, that is). The world is at peak production of oil and there is ever increasing demand. Heading into the coldest months of the season, the price of unleaded gas dropped more than $0.70 per gallon on average. Even the loss of half of our crude refining capacity due to the spill and shutdown of a BP plant in Alaska did not make the price of gas go up in this country.

This was commented on at the time, including an actual study, showing not only an artificial drop, but a correlation in this ahistorical drop to US domestic election years (See the charts from 2006-2003, 2002-1999, 1998-1995. These look interesting but inconclusive to me, but I'll trust the judgment of people who have much more experience in this field than do I).

Hamilton analyzed the gap between pump prices and the spot price of crude oil in election years, compared to the non-election previous years. He found that in 2002, 2004 and now in 2006 there was a moderate to substantial shrinking of that gap, meaning less profit potential for the oil companies, in measurements taken the first week in October.
...
"This pattern of the last three election years is an indication that motorists who smell something fishy in the rollercoaster prices they've endured this year may be on to something," said FTCR President Jamie Court. "The rise to record high gasoline prices this spring unleashed a wave of justified criticism of bloated oil company profits. Now the price drop in the pre-election period, by a percentage well beyond reductions in the price of oil, smells just as bad."

Even the loss of half of the oil shipped by BP from Alaska after a pipeline accident did not put a dent in steadily rising gasoline production, which exerts downward pressure on retail prices.

Obviously, a drop in gas prices before November in even-numbered years but only for the last three election cycles makes no economic sense. But it makes a boatload of sense if you are an oil company with close ties to the ruling party of a significant economic country. A country that, should your friends go out of power, might decide to not only investigate you, but to tax your record windfall profits, and possibly implement those dreaded price controls.

There are other post-election examinations of the convenient nature of unexpected and illogical oil price drops and the US midterm elections too numerous to list. I do recommend the pre-election link above is a recommended read, with some great discussion and graphs. Including this one of unleaded prices over the past year:



My best guess is that the drop in oil prices was the October Surprise the GOP had lined up as their killer move. Unfortunately for them, and fortunately for the country, their gambit did not work. This was probably for a few reasons: one, they couldn't claim credit for it, because that would give the whole corrupt game away. No credit means no votes, other than general feelgood inclinations twoards them. Two, the effect was too subtle for general good feelings in the populace toward our paternalistic GOP rulers. And, not least, three, that their other scandals, incompetence, and corruption were so overwhelmingly large that they could be giving gas away on the corners and people would still be wondering why Johnny only has one leg. Apparently they are as lacking in competence at October Surprises as kar Rove is at having a soul.

As further anecdotal evidence to the pile, I'm sure I'm not the only one who has been noticing gas prices inching back upwards of late. Here we go again.

I wonder if the gas companies are going to try and claim their unrealized profit from the artificial deflation of gas prices as political contributions and exempt it from their incomes on their taxes this year? Better yet, I wonder if anyone will file a shareholder lawsuit2 against the boards of directors of the oil companies for breach of fiduciary duty to the company?

1. OK, I wouldn't do the Chavez part. You just know he'd go blabbing his big fat mouth about the deal everywhere. No link because the discussions were offline. You'll have to ask Ms. Grumpy to verify.

2. AKA a "derivative suit."