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By Robert Rapier on Oct 31, 2014 with 12 responses

Is President Obama Manipulating Gasoline Prices?

Executive Summary for Those with Short Attention Spans

For those who tend not to read much past the headline, the answer to that question is “No.” If you want to understand a bit more about the issue of falling gas prices during election seasons, read on.

The Rotating Roles of Accused and Accuser

It never fails during election season that when gasoline prices are falling, the party out of power and media members sympathetic to that party will start to make accusations and insinuations that the President is manipulating gasoline prices in order to win elections. It happened when Clinton was in office, it happened when Bush was in office, and now it’s happening while Obama is in office. The only things that change are the party that is being charged of manipulating prices, and the people who are defending or accusing that party. This year it’s Fox News doing the accusing, and MSNBC defending.

As I occasionally feel the need to point out — especially in an election year — there are fundamental, predictable reasons that gasoline prices fall at this time of year. This happens most years, even in non-election years. Gasoline prices fell at this time of year in 2011, 2012, and 2013 — two of which were non-election years. It is just that the political accusations only arise during election years.

Why Gasoline Prices Actually Fall in Fall

First of all, why do gasoline prices fall at this time of year? A couple of reasons. Summer driving season is over, and demand is typically declining at this time of year. At the same time, the gasoline specifications switch over to a winter blend that is both cheaper to produce, and that contains ingredients (butane being the most significant) in greater abundance. See my article Why Gasoline Prices are Falling for a deeper understanding of this issue.

So you have lower demand, greater supplies, and lower production costs all converging at about this time every year. This year, add in the fact that oil prices have retreated sharply since summer (due to both the fracking boom and weakening demand around the world), and gas prices are falling more than normal this year.

Sometimes other factors do trump the factors that push gasoline prices down. Hurricane Katrina in 2005 took a large fraction of oil production offline in the Gulf of Mexico at a time that the oil supply was already tight, and this drove oil prices sharply higher. So that year we didn’t see the typical fall price decline.

How a President Can Impact Gasoline Prices

There are only a couple of handles a president has on short term gasoline prices, and both are readily apparent when they happen. A president can announce a release of crude oil from the Strategic Petroleum Reserve (SPR) in order to flood oil into the market and depress prices. President Clinton actually did this leading up to an election, so the charge that he manipulated prices has some support.

A president can also convince Congress to temporarily lower the federal gasoline tax in order to reduce gasoline prices. Again, that would be an obvious attempt to gain political favor if done just before election, and it is a gimmick that then presidential candidates John McCain and Hillary Clinton both proposed when they were running.

In the longer term, presidents can enact policies that influence the price of gasoline. Any policy that either reduces or increases the supply of oil, changes demand for oil, or that makes renewables more cost competitive with oil, will eventually impact the price of gasoline at the pump. But these are policies that take years to have an impact, and probably won’t be fully felt until after a president is out of office.

Conclusions

So, is President Obama manipulating gasoline prices? No. Did Bush leading up to elections? No. There is some evidence that President Clinton attempted to, because he did use one of the political handles that a president can use to temporarily lower prices. But most of the time, these conspiracy theories have no basis in fact. Gasoline prices generally fall in the fall, and for just the opposite reasons they rise in the spring just ahead of summer driving season.

Link to Original Article: Is President Obama Manipulating Gasoline Prices?

By Robert Rapier. You can find me on TwitterLinkedIn, or Facebook.

  1. By Edward Kerr on November 1, 2014 at 9:48 am

    Robert,
    What’s your take on the claim that fuel prices have dropped, in part, because the Saudis have indicated that they will “open the spigot” to drive down global prices in an attempt to bankrupt Russia (the bulk of Russia’s state budget comes from gas and oil sales that need to be as high as possible for them to meet expectations) over Russia’s support of Syria?
    Regards,
    Ed

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    • By Robert Rapier on November 1, 2014 at 10:25 am

      I think they are just talking. There will be too much dissent within OPEC for that. A lot of the OPEC members already have their budgets in the red at these prices.

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      • By Edward Kerr on November 1, 2014 at 10:34 am

        When I read that claim I was skeptical too but thought it ‘plausible’ yet unlikely. Thank for the reply as I value your opinion.

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  2. By Russ Finley on November 2, 2014 at 12:35 am

    What we “want’ to believe is true, usually isn’t.

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  3. By Forrest on November 3, 2014 at 8:29 am

    While the accused and accuser roles often flip, they are not equal. For example Bush years politics had pushed electorate to hyperventilate from daily barrage from news agencies depiction of suffering families. Present day media has no interests in the emotional cost of energy stories, when prices are high. I could give you dozens of examples of hypocrisy of media upon politics. Also, my complaint of pop mass media such as news, they never inform or educate public if the matter has a hint of political power of Left i.e. overweight starving children. Since media is run by union members, I can only assume this is the main culprit. GW did usher in the era of renewable energy as did Jimmy C attempted before him. The second administration picked up on the task and inflated benchmarks to greatly enhance the endeavor as well. I read the U.S. shale boom and Libya new production has over supplied or upset the business as usual OPEC market manipulation and Saudi Arabia is not willing, this time, to take a hit to recover price increase. I’ve often read the over production of one million barrels per day the culprit. So, how can those claiming ethanol production, close to same not have an influence on price of oil? BTW, I’ve read that S.A. has utilize oil influence per international politics often and when looking at the crude oil production during run up of electing the new U.S. candidate that promised to take the country a new direction per his empathy of Arab concerns and the timing of huge spike in crude oil price that quickly reverberates within U.S. politics, well, I’m sure that’s all coincidence. Many international suppliers of crude oil market are hostile to U.S. interests, governance, religion, wealth, and way of life. I know many within in our borders think likewise, we are the problem to international peace and harmony.

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    • By Optimist on February 4, 2015 at 8:15 pm

      “So, how can those claiming ethanol production, close to same not have an influence on price of oil?”
      Simple: it takes about one barrel of oil to produce one barrel of oil equivalent of ethanol.

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  4. By BonzoDog1 on November 4, 2014 at 1:15 pm

    I used to be of the opinion that the only way a U.S. president could affect gasoline prices in the short term was by launching either a war or a recession. Then W did both to little real effect.
    Right now there’s probably a lot of behind-the-scenes diplomacy aimed at putting the hurt on Putin for his invasion of the Ukraine (among other things).
    Then you have the fact that members of a supply- and price-fixing cartel always has trouble staying on the same page, as evidenced by the cocaine business.

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  5. By Pieter Siegers on November 12, 2014 at 11:53 am

    No, his bosses are, to answer your title question!

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  6. By fj on November 26, 2014 at 10:53 pm

    i find this tough to believe that gasoline prices consistently fall in one season and rise in another. If this were the case anyone at a trading desk (or any investor for that matter) could make a huge amount of money in the futures market by betting on the price of oil. The current price of oil, as in today, is impacted by supply and demand (as detailed above), but also by investor speculation. If a good is mispriced then then buyers enter the market with the expectation of buying low, at the current period, and selling high at some future period. If the expectation is that gasoline is at a seasonal low during the fall and will rise during the winter months, then there are millions of investors around the world that will bid up the price of oil during the fall so that they can exit their investment during the winter months to profit. I think the supply and demand explenation above is great; however, it appears to be missing the role of financial markets on oil prices. On a side note–I really enjoy the articles by RR.

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    • By TimC on November 28, 2014 at 11:29 am

      “i find this tough to believe that gasoline prices consistently fall in one season and rise in another.”

      There’s no need to believe anything, fj. The US EIA has data on weekly retail gasoline and diesel prices, going back decades. The link is below, take a look. While there have been exceptions, in almost every year pump prices rise in the spring and drop in the fall.

      Since you are certainly correct that futures speculators are aware of this seasonality in prices, why do you suppose it persists? Why hasn’t speculation completely flattened out predictable seasonal price fluctuations?

      US EIA weekly retail gasoline and diesel prices:
      http://www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm

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      • By Robert Rapier on November 28, 2014 at 11:31 am

        Yeah, I meant to address that. I think the last time I checked it was about 80% of the time over the past 10 years that gasoline prices were lower in the fall. It is not an absolute rule because there can be overriding factors, but it is generally true.

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        • By Forrest on November 29, 2014 at 7:24 am

          fj- Futures or hedges (derivatives) investments only make money if the price change is more than expected. If the market changes as . expected, no money is made. The FTC watches trade volume to disclose unfair practices. EPA found illegal RIN trading by one investment house that parent company had energy company. The small market was easy to manipulate. Teacher’s union retirement fund was warned per bad actions a few years ago with seasonal investments to manipulate cost of oil. When the market supply is inadequate or just able to meet demand, this is a sweet time for FTC to watch volume of trading. Hunt brothers (legal activity) attempted to corner silver market once and lost all their wealth. George Soros exploited a weakness of currency exchange and is known as the man who broke BOE. Commodity markets are extremely efficient and rare that novice would make correct calls i.e. Hillary’s early fortunes. The investment devices do work to stabilize volatility and wonderful way for producers to stabilize supply per use of capital. Even today the news of OPEC long history of influencing selling price of crude oil is giving up per the Balkan oil supply. The organization of suppliers refuse to cooperate, coordinate, and S.A. with it’s vast reserves not willing to foot the bill to make it happen. BTW, BEV requires single source supply of lithium from Chinese. Do you think this country is willing to encourage world’s critical need of their supply?

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