Q: Crude prices are hitting all-time highs with every passing day with no end in sight. In non-election times, just a whiff of increased oil prices is enough to send pump prices jumping overnight. Not so now — which begs the question of why and who? While many of us don't want to look a gift horse in the mouth, the gasoline pricing "cap" certainly smacks of oil companies' efforts to keep the Bush administration in office by keeping the masses fat and happy with full tanks at affordable rates.
Do you honestly think that George Bush would still be in a statistical dead heat with Kerry if gasoline prices were hovering around the $3/gallon mark? We shouldn't kid ourselves that the low fuel prices aren't part of a concerted effort by the powerful oil and gas corporations — whose financial interests are tied to keeping the status quo — to keep Bush in office. Whether this theory is right or wrong, Americans should know the truth. Are we all so stupid as to not think that the pump prices will skyrocket soon after the election? I find this manipulation of the citizenry both offensive and immoral. — Shelley G., Colorado
A: We here at the Answer Desk like a conspiracy theory as much as the next guy. One of our first stories as a cub reporter, in fact, told of how, during the height of gasoline rationing in the late 1970s, the retail outlet for a major oil company in a wealthy New York suburb mysteriously opened up one Saturday night, stayed open for a few hours and then closed. The company said it was part of an “experimental marketing program." It turned out the company CEO, who lived in town, was hosting a party that night, so none if his guests were inconvenienced by running out of gas.
But manipulating the hours of operation for one gas station is one thing; manipulating the global price of gasoline is another. It turns out there a much better explanation for the recent dip in gasoline prices.
Like many commodities, gasoline prices are determined by markets in several ways: futures traders buy and sell contracts minute-by-minute, wholesalers compete against each other to supply retailers, who raise and lower pump prices depending on what the station across the street is charging. (Yes, many outlets are captive to the Big Oil brand they serve, but except in neighborhoods with only one gas station, competition is pretty healthy.)
While gasoline and crude oil prices are indirectly linked (higher crude does eventually raise gasoline prices), they do not move in lock step. For starters, most oil is sold under long-term contracts. So, even as crude prices rise, not everyone pays the "spot" price you see in the headlines. That just refers to the last barrel sold.
More importantly, the price of any commodity rises and falls based heavily on supply and demand, and sometimes it takes a while for gasoline supplies to catch up with — or overshoot — changes in demand. And that’s what happened this summer.
As you can see from the chart, the rise in gasoline prices this spring produced a surge in production, as refiners produced flat out to take advantage of high prices. That caused inventories to rise. (“Inventories” refers to all the gasoline sloshing around the system — from those big storage tanks you see next to a refinery, all the way through pipelines and tankers and delivery trucks, to the underground storage tanks at your local gasoline station.) Through most of the summer, that plentiful supply helped keep prices fairly steady — or even decline a bit in some areas. And, along the way, refiners made a bundle of money selling lots of gasoline at relatively high prices.
Then, as the summer driving season wound down, gasoline demand fell, as it always does this time of year. With supplies still plentiful, prices held steady. But, as refiners began shifting over to building up supplies of heating oil for winter, gasoline inventories began falling. Now, prices are rising again.
So if you wanted to manipulate gasoline prices, you would also have to somehow get the cooperation of dozens of independent refining companies — both here and abroad — to flood the market with gasoline before the election. All of this is not to say that gasoline and heating oil prices won't continue to rise after November — the odds are they will. But, despite consumer suspicion, we find it hard to believe that the oil industry is artificially holding down gasoline prices to help Mr. Bush keep his job.