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Election Looms, Gas Prices Drop

A Tiger in GOP's Tank

By Joe Benton
ConsumerAffairs.com

September 13, 2006
Gasoline prices have dropped to $2.50 a gallon or less in 14 states and prices just keep on falling. Just one year ago the price of a gallon of gasoline was over $3, setting new records nationwide.

Now why would that be?

Cynics and Washington insiders will suggest to you without much hesitation that gas prices are sure to rise again in a little more than 60 days -- right after the midterm Congressional elections on November 7.

Several polls show that the No. 1 issue heading into the election is not the war in Iraq or any terrorist threat, but the performance of the U.S. economy. Meanwhile, pollsters report that intense unhappiness with the economy has eased as oil and gasoline prices have declined.

The reason for the decline isn't clear. The summer vacation season is over and demand is down and that can help lower prices. But still, U.S. consumers are using more gasoline this year than last.

At the same time, Big Oil is out in force talking down oil prices and promising there is plenty more oil to go around. And get this -- the oil companies are saying a barrel of oil just plain costs too much.

None other than Exxon Mobil chairman and chief executive officer Rex Tillerson now claims crude oil prices at around $75 a barrel are undermining economic growth in countries around the world, not to mention the U.S.

"Prices at these levels are not healthy for economies anywhere," Tillerson told reporters at an oil industry conference in Stavanger, Norway.

He ought to know. Exxon Mobil earned almost $40 billion in 2006 and is headed toward $43 billion in earnings in 2007. Like the record gas prices that produced them, those earnings are records too.

Plenty of Oil?

While Tillerson was in Scandinavia complaining about high oil prices, his chief executive officer was down under in Australia debunking claims of an imminent oil shortage.

Mark Nolan told 600 petroleum engineers at the Asia-Pacific Oil and Gas Conference in Adelaide that there is ample oil in the world to supply future demand. Nolan said there is still at least three trillion barrels of oil left in the world, and consumers have used just one trillion barrels so far.

Wow. What a difference a year makes.

Last September oil executives were all explaining the law of supply and demand to justify sky-high gasoline prices and they had us all wondering if our next gallon of high octane would be our last. Too much demand and not enough supply worked out to $3-a-gallon gasoline and those all-time record profits at Exxon Mobil.

Not much has changed. The hurricane season has been fairly mild but no news refineries have been built and no new oil fields have come online.

Lots of oil? that would be news to the U.S. Energy Information Agency, which earlier this week forecast another year of rising demand with only a limited increase in supply. According to EIA, worldwide petroleum consumption should grow by about 1.2 million barrels a day in 2006 and 1.7 million barrels a day in 2007. In 2005 the world used about 84 million barrels of oil a day.

EIA forecasts oil production capacity will increase only slightly in 2007, all of which will come from Saudi Arabia.

An Agenda?

When explaining away increases in the cost of gas, drugs or other essentials, politicians and corporate titans like to gush about the "invisible hand" of the free marketplace. But sometimes if you look closely, you can catch a glimpse of that hand as it slithers in and out of your pocket.

Could it be that there is some hidden agenda or lurking factor driving down pump prices? Could it be that after a year of charging consumers all their wallets could stand, Exxon Mobil sniffs an important election not far away?

Any good predator backs off momentarily as its approaches its prey, taking a last check of the terrain before closing in for the kill.

With gas at $3 a gallon, a lot of folks might head off to the ballot box steaming mad at politicians and Big Oil. That would be bad for incumbents, i.e., Republicans. Imagine the cost to Big Oil of a Congress in the hands of the Democrats next year. Can you spell p-r-i-c-e c-o-n-t-r-o-l-s?

The cost of Democratic control of Congress to Big Oil might reach well into the billions -- a lot more than keeping a lid on gas prices between now and November.

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