Election week gas prices were year's low; started rising again immediately afterwards

Barring an unexpected Southward turn in the final five weeks of 2006, Americans will have enjoyed the lowest average gas prices of the year during the week of the 2006 midterm elections. Two weeks before, the prices hit what was then an annual low, and in the week after the votes were cast the cost of a gallon of gas in the U.S. rose by more than three cents (last week they rose by another penny).

If you'll recall, average gas prices dropped by fifty cents, or 17 percent, between the end of August and the end of September -- when the primaries were done and the campaign season began in earnest. At the time, the White House said that any suggestion the drop was related to the midterms was a "conspiracy theory," prompting me to ask, not for the first time, exactly how stupid they think we are.

According to Trilby Lundberg, whose Lundberg Survey of gas prices showed a five-cent hike after the election, the recent price hike -- after three months of plummeting retail costs -- is a result of the market having "soaked up" a "mini-glut" of crude oil from August, causing a "normalization" of supply and demand.

What's the source of said "mini-glut"? My new friend Ghandi at Bush Out points to this bit of gamesmanship during the summer:

… the Saudis and other pro-US players in the Middle East play[ed] a delicate balancing game by promising their OPEC friends that they would cut production, but then failing to commit to the cuts and even raising production slightly instead.

Hmmm, where have we seen that kind of thing in the past?

During a meeting in the Oval Office, according to [Bob] Woodward, Bush personally thanked Bandar because the Saudis had flooded the world oil market and kept prices down in the run-up to the 2004 general election.

That's Prince Bandar bin Sultan bin Abdul Aziz, also known as Bandar Bush for his long ties with the Bush family. You know, these guys:

Also, via Ghandi, there's a story that came out just four days after I last wrote about this. I completely missed it -- buried as it was on page 9 of a Saturday New York Times business section -- but others thankfully caught it:

Politics and worries about oil supplies may have caused gasoline prices to go up at the pump earlier this year, but one big investment bank quietly helped their rapid drop in recent weeks, according to some economists, traders and analysts.

Goldman Sachs, which runs the largest commodity index, the G.S.C.I., said in early August that it was reducing the index's weighting in gasoline futures significantly. The announcement did not make big headlines, but it has reverberated through the markets in the weeks since and some other investors who had been betting that gasoline would rise followed suit on their weightings.

"They started unwinding their positions, and those other longs also rushed to the door at the same time," said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. The August announcement by Goldman Sachs caught some traders by surprise.

To be precise, that was $6 billion worth of gas futures dumped on the market like a sack of potatoes, catching "traders by surprise."

Blogger Raymond Keller notes that Goldman's move came just weeks after its former Chairman and CEO became a Bushie:

President George W. Bush nominated Henry M. Paulson, Jr. to be the 74th Secretary of the Treasury on June 19, 2006. The United States Senate unanimously confirmed Paulson to the position on June 28, 2006 and he was sworn into office on July 10, 2006.

So what does Goldman do just weeks after Paulson is sworn in as Treasury Secretary?

It announces a subtle move that drives down gasoline prices, short-term.

And finally, some fine-tuning. Ghandi points to this note at Blogging Stocks:

… there ought to be a relationship between the price charged at the pump and the cost of crude oil. I found that this relationship got a bit out of whack the [week of] the election. Specifically, on November 6th, the ratio of the price/barrel of gasoline at the pumps and price/barrel of crude oil fell to 167% -- significantly lower than the weekly average of 174% between August 21st and November 20th.

Between August 21 and September 25, the average ratio was 177.5 percent, more than ten percentage points higher than the week of November 6.