Why is the price of oil falling?

Ramblings about oil, elections, and the economy – Part One

Demand in the US is down. Speculators make their money. Hedge funds that put billions into the sector, are running. And other ideas are being sloshed around.  i.e. Having made more money than any companies in history, American Oil companies can now bank it, and get an oil friendly replacement for the current oil friendly Chief.

Oil has a way of falling before an election.  Gasoline prices have fallen before federal elections almost every year since 1990,and almost always this has been attributed to supply and demand.

In 2006, oil fell $.85 from August to November before the elections, with oil futures on the New York Mercantile Exchange closing at $57.88 a barrel, down sharply from the record high of that year of $78.40 on July 14.

Today the price of oil started at $118, having almost hit 150 a barrel not a month ago.  Experts say that the weakening American economy means that America needs less oil.

Whatever the reasons, the oil and stock cycle in the months leading up to elections is a discussion that cannot be avoided.  Back in September, 2000, the NY Times wrote:

This will be the 26th presidential election since Charles H. Dow put his industrial average together in 1897. So far, its record as an election prognosticator is 22-3 — not perfect, but at least as good as the average pollster.

The indicator says that if the Dow rises from the end of July through the end of October — the three months when investors are most attuned to the political season — the incumbent party will win the election. If the Dow falls, however, the incumbents will be thrown out. Perhaps a rising stock market reflects contented voters.

If the current oil slide continues, propping up the Dow and the markets, it would put a John in the White House, according to the Dow factor.

Meanwhile, consumption of oil worldwide continues to rise at steady rates. China, India, and the developing world are chugging oil.  OPEC says that demand is up, however less than it was – in other words the world needs more and more oil everyday, but less that they thought it would need.

Domestically, the pressure to extract more oil from off-shore and on-shore drilling is great.  The campaign trail is being paved with arguments about energy policies, and who-can-drill-where arguments.  Not that more oil wells will lower the price of oil on a huge scale, or help our economy.   But it sounds good, as if every American’s patriotic duty is to drill for oil in their backyard to help America become “energy independent” or whatever that means.

Americans are changing their habits quickly to adjust to the $4 a gallon world, and that is good ultimately for America. Alternate energy sources and means of transportation are everywhere, and more Americans are using mass-transit than ever before.  But will falling oil prices convince Americans that the crisis is over, and that they can go back to driving Hummers, Yukons and Ecalades, and put a John in the White House?  Will falling oil prices kill Israeli electric car projects in Israel and in California?  Too early to predict the future, I say.

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Posted on August 5, 2008, in News and politics and tagged , , . Bookmark the permalink. 2 Comments.

  1. The only energy or oil monopoly in this country is a governmental institutionalized monopoly on our country energy market. The legislative branch has been engaging in anti-competitive energy practices from drilling to building new refineries and much more. They are in clear violation of the

    “Sherman Antitrust Act
    This Act expresses our national commitment to a free market economy in which competition free from private and governmental restraints leads to the best results for consumers.” http://www.usdoj.gov/atr/contact/newcase.htm#file

    Clearly the governmental restraint are in violation of a free market economy and is criminal negligence on the part of the liberal politicians who are the real cartel that profit in taxes more then 3 to 1 to the oil companies that actually work for their money and then have to pay taxes on top of that. So when Oil profits go up the tax revenue increase is 3 times that of the oil companies. So who do you think is the real cartel???

    This criminal incompetence of the democrats and legislative politicians anti free market energy economy in allowing American companies to meet American Oil needs is in need of change and with bush opening up offshore drilling it is time that we conservatives take a page from the left wing play book and for us to us the judicial system in upholding our laws and open up drilling.

    Why dose the Senate call for investigations on big oil? Because they are trying to transfer the blame off of them by placing the blame on someone else. By placing the blame on the oil companies and keep people from seeing that government is the true problem they are able to offer false hope in an effort to gain more power and money from taxes while eliminating a free market economy in our country and forcing us to send our money to unfriendly Middle Eastern countries.

    Why should we drill?
    1) Create more high paying jobs for Americans
    2) Become energy independent and stop sending $700 billion to middle eastern countries that support terrorism
    3) Invest the $700 billion in America
    4) $700 billion is 6% of the yearly US economy, and investing this in America would do what to our economy? Lower inflation and strengthen the US dollar?
    5) Instantly drop the price of oil because oil Speculators like me would invest in commodity producers that provide the product like Exxon, Chevron, BP, Shell, because this is the smart investment. When Oil Speculators transfer investments the Oil price falls on the stock market.

  2. Sounds really nice…but its not entirely true.

    I don’t disagree that the Gov is partially to blame, as are corporations.

    Drilling will not come on line for another 10 years. That is right 10.

    By being more energy efficient today – we can consume less, lower demand, and bring down prices immediately.

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