BY MARK J. PERRY
October 12, 2006
If you've been following recent media coverage of the elections next month, you've probably heard a fairy tale that goes something like this: President George W. Bush and the major oil companies have conspired to cut gasoline prices for electoral gains.
In fact, a recent
The simple truth is that changes in the world price of crude oil account for nearly all changes in the retail price of gasoline -- and so recent international events such as an easing of tensions in the Middle East and growing inventories of oil exerted substantial influence in reducing both oil and gasoline prices -- exactly what textbook economics tells us to expect.
Indeed, global oil prices have dropped from almost $80 a barrel in July to less than $60 a barrel now, causing retail gas prices to fall from $3 per gallon in early August to $2 per gallon now in many parts of the country.
Further, the basic economic reality of world oil trading is that even the biggest oil companies don't set gasoline or oil prices, any more than farmers set the price of corn, soybeans, coffee or sugar.
Oil and gas prices, like all world commodities, are set by the twin forces of global supply and global demand in a competitive international marketplace, not in the conference rooms of oil companies.
And many people also mistakenly think that the major
Most of the world's oil is owned by the national oil companies of foreign
governments such as
Oil and gasoline prices in the
The irony here is that if there is any single group making our energy situation worse, it is Congress, not oil companies. Consider just two salient facts:
• It is Congress whose environmental mandates require oil refiners to produce 18 different types of boutique automotive fuels.
• It is Congress that has failed to agree on legislation that would open up more federal land and offshore areas to oil production, which would expand oil supplies and could help keep gasoline prices affordable for the average American.
At a time when the nation is more vulnerable than ever because of our persistent and rising dependence on foreign oil, one would hope that the wide swings in energy prices in recent years would help initiate a national discussion of what could be done to bring greater stability to oil prices. And yet, even in an election year, these critical energy issues have not been addressed in a meaningful way by politicians.
When gas prices were rising earlier this year, oil companies were accused of "price gouging" and were investigated by the U.S. Senate. Now that gas prices are falling, many Americans believe in a gas-price conspiracy by oil companies to lower prices deliberately for political reasons.
Whether gas prices are rising or falling, we're quick to scapegoat
MARK J. PERRY is an associate professor of finance and
economics at the
Copyright © 2006 Detroit Free Press Inc.