Election Gas Price Challenge--Back to the good old days?
The months leading up this election have been interesting to say the least. Financial collapse of banks and lending institutions around the world, one of the most "compelling" and "interesting" elections in history, fires, floods, earthquakes. I'm wondering when frogs will start raining from the skies and plagues of locusts will sweep through Los Angeles. To me this is all normal and expected, but there is something that is less so--gas prices.
If you want to take a really long, really fast road trip or buy an old muscle car and go down to the local 7-11 to do donuts in the parking lot all day long, now is the time to do it. If you've been thinking about experimenting with that 1,000-horsepower gas turbine lawn mower, weed whacker, or wood chipper, now's the time to do it. Now is the time to buy a dozen Escalades and drive them non-stop from Anchorage to Tijuana. Want to equip your tailpipe with a flame-thrower. ...
I'm not a conspiracy theorist, and in the sacred and decidedly non-political Swiss-like-neutral pages of Car Lust I would never be so impudent as to assert any speculative reasons behind this peculiar downturn in the price of gasoline at the pump. But let's just stop for a minute to consider the situation.
A few short months ago we were all expecting the price of gas to hit $5 per gallon and shoot past that. Gas prices were jumping on the order of $0.15 overnight. But now when the economic conditions of the country and the world are in about as bad a place as they've been in a long time, the price of gas keeps falling. In fact, it's dropping as quickly as it rose a few months ago. Prices in some parts of the country are below $2.30 per gallon. This a week after Iceland asked the IMF to bail out the collapse of their banking system to the order of a $2 billion over two years. This is an incongruity. Honestly, we are pretty lucky that the prices are falling--if they were higher the country would be even worse off. The world would be much harder hit if the price of a barrel of oil was not as low as it is right now.
Some in the industry and financial world have ascribed this to prices
maxing out and causing gas consumers to reduce consumption, thereby
lowering demand, and forcing prices to drop. Others state that dire
financial conditions alone have caused prices to fall.
I'm not completely convinced by these explanations. While they have some validity, is the reduction in consumption and demand so dramatic as to have pushed prices at the gas pump down over to $2.50 per gallon? We are looking at prices that are heading toward the $2.00 per gallon mark. Gas prices were on an upward trend. It seemed logical that the current price of gas would be at or near the maximum. I would have guessed that prices would hover near a maximum allowable level and reduce slightly. I never would have anticipated a precipitous drop in excess of 50%.
We could look at the high prices that were near $5 per gallon as the real anomaly. If that were the case then the $5 was a mistake and there was a correction in the market that reduced prices to a now-appropriate level. Perhaps the $5/gallon price was all the result of speculation or some other freak market occurrence. But everything we were hearing just a few short months ago was that gas prices would keep on rising ... we were seeing the future. I've looked at gas price graphs; the past year's upsurge in price was unprecedented and part of an trend of exponential growth. Reduced supply and increased demand were a given. Could the recent drop in prices be a purely market-driven correction? It could be, and I'm no expert, but I don't buy it. I don't think this is entirely market driven.
Here's why. I have been keeping an informal record of gas price
drops. In the last eight years prices at the pump have dropped a number
of times. In my informal tally, major price drops have occurred in the
months leading up to major or very important national elections.
Following each of those elections, prices of gas at the pump have shot
back up sharply. If you want to play around with this, Google Labs has
an interesting little tool. Unfortunately, you will have to do the
correlation to election cycles. Do I have any well documented data? No,
of course not!
My conclusion from this is sketchy at best. The perceived relationship between gas prices and election cycles could be a complete coincidence. It could also be an indication that market forces are not the only thing that influences prices at the pump, and that there is some kind of secondary effect which overrides the market and sets prices of gas at artificially low levels during election cycles. The common assumption has been that lower gas prices work to the advantage of an incumbent. To appease the mobs of Rome, Ceasar gave them bread and spectacle, the Circus Maximus. Ceasar knew the electorate. Lowered prices of key commodities always plays well with the crowd.
What I want to do with this post is to put a stake in the ground and ask you to chime in. What's your prediction about gas prices? What do you think is going to happen after the election in early November? Will gas prices continue to fall? Will they rise? What's your best guess about where prices will be two weeks after the election, one month after the election, and six months after the election? It may be, as is generally being reported, that prices are falling due to decreased demand because of a very bad hit to the economy.
My belief has
been that prices are artificially pushed down prior to elections and
rise afterwards. This could be completely bogus or it could be dead on.
If it is true then we come to the question of what the mechanism is
that controls this pricing behavior.
On the other hand, if current gas prices are solely the result of a
bad economy forcing reduced consumption, then was the fact that their
fall matched the trajectory of the election a pure coincidence? What
about all those other pre-election price drops... also coincidences? If
this is all purely market-driven then we should see prices for gas at
reduced levels even well after the election--any changes should map to
an overall economic trend that pushes consumption one way or the other.
We won't know for a few weeks.
So now is the time for making a prediction. Idle speculation is always good. The winner gets to feel really smart. In the meantime, I'm wondering where i can stash some cheap gas that I'm about to start hoarding. While gas prices are still low, I'm also looking at some new rides ... what do you think?