Why are Gas Prices Going Down?

A few weeks ago, I wrote a column about gas prices going up and, currently, we see the cost of gas going down. The reason this is noteworthy is that none of the causes for the inflation of these prices have been resolved. Also, interesting is the fact that the summer traveling season is upon us and, usually, when we see heavy demands for gas. This increased demand almost always yields an increase in pump prices, so how does one explain their decline at this time?

As a comparison, prices in St. Louis have dropped from a high of around $3.89 (as much as $4.00 in some areas) to a present price at this writing of $3.04. That is definitely a significant decrease and a welcome relief to everyone in the area.

“Experts” have also noted the decrease and given their perspective on why this is happening. The ideas are extremely varied. Kevin Drum theorizes that Fox News and other media have raised such awareness of high prices that this has caused a decrease in prices. http://www.motherjones.com/kevin-drum/2012/04/hooray-gasoline-prices-are-going-down . CBS News reported that prices are down because there is unusual peace in the Middle East (what????) that is bringing down the price of a barrel of crude oil which they see as being tied directly to the cost of gasoline. Others say that there is really no connection to the price of a barrel of oil and the price of gas, (specifically, the web site How Stuff Works http://auto.howstuffworks.com/fuel-efficiency/fuel-consumption/gas-price1.htm) while many more argue that this is the only factor in gas prices. One of the most interesting articles on gas prices is found at http://goldnews.bullionvault.com/gold_money_022720124 where they argue that prices are not going up, but the dollar is dropping giving the impression that prices are increasing. This article also suggests:

 “ ‘Oil is traded in Dollars, and its price therefore rises when the value of the Dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama's term has pursued the easiest monetary policy in modern times, expressly to revive the housing market. It has done so with the private support and urging of the White House and through Mr. Obama's appointees who are now a majority on the Fed's Board of Governors.

"Oil staged its last price surge along with other commodity prices when the Fed revved up its second burst of "quantitative easing" in 2010-2011. Prices stabilized when QE2 ended. But in recent months the Fed has again signaled its commitment to near-zero interest rates first through 2013, and recently through 2014. Commodity prices, including oil, have since begun another surge, and hedge funds have begun to bet on commodity plays again. John Paulson says he's betting on gold, the ultimate hedge against a falling Dollar.

"Fed officials and Mr. Obama want to take credit for easy money if stock-market and housing prices rise, but then deny any responsibility if commodity prices rise too, causing food and energy prices to soar for consumers. They can't have it both ways, as not-so-stupid Americans intuitively understand when they buy groceries or gas. This is the double-edged sword of an economic recovery 'built to last' on easy money rather than on sound fiscal and regulatory policies.’ "

Source

Even though there is a genuine reality to the theories noted above, there seems to be a very political reason for the price drop at this particular time. I need to reiterate that absolutely none of the factors that I outlined in my earlier column about the rising cost of gasoline have been corrected (except it is true that the price of crude oil is currently down). While I indicated that I do not think the president has much control over the price of gas, the same is still true as it goes down. However, just as the president gets hammered for the high prices, he will enjoy the benefit of the prices going down.

Since this is an election year, it is clear that President Obama faces three danger areas with respect to re-election. Those three problems are jobs, the economy and gas prices. If people are hurting in their wallets, they are not likely to re-elect the president. If there is real financial pain, the election will be affected by that. Therefore, the only way to improve his chances of winning (which seem fair – even if the current state of affairs is to fix some of these problems). While the president is not likely to erase a debt rushing toward $16 trillion dollars, he may be able to convince people that the job situation is better or on the verge of being better. If he could deliver such a message combined with significantly lower gas prices, he just might be able to pull off a second term.

Since the president really has no power to control prices short of setting price controls, how will he pull off such an action? Perhaps he does not have to – if those intent on pushing his Marxist agenda will do this for him. If the gas and oil companies drop the prices (even if it is a temporary or even artificial), they just may be able to help him in his bid for a second term. After the election, it is easy to see the gas prices jump to the previously predicted $6.00 or $7.00 per gallon prices.

This is speculation to some degree, but there seems to be no other explanation for the drop of prices at the pump. Only time can tell if this speculation is correct. But the wait will not be long. My advice is to enjoy these low prices until November and then get ready for the huge increase.

John Wayne Tucker

http://johnwaynetucker.com/congress

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