Tuesday, 19 September 2006
Price of Gas
« Updates on the 2007 Gubernatorial Race | Main | Update on Northup / Yarmuth Race »For some time now I have been preaching three things about gasoline. First that the gas prices were artificially high and would eventually drop. That the drop in gas prices will help the Republicans in the fall elections. And finally that people are irrational when they worry about the fluctuations in the gas price. Now I am starting to find proof to back up my assertions.
First off, I have thought that the oil prices were artificially high and that we would see an oil bust that would send gas prices back down to more reasonable levels (around 1.50 a gallon). Well, low and behold it looks like it is beginning to happen and the drop could be more severe than I thought.
The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s ��� perhaps as low as $1.15 a gallon.
Why? Because people were scared there would be a disruption in oil production from either problems in Nigeria, the Middle East, or another large scale hurricane in the gulf. This lead oil traders to bet that prices would continue to go upward. Which led oil consumers to stock pile oil in case of future shortages. Now that the summer crunch for oil is over, the demand for oil will go down. Combine that with the over supply and prices will dip dramatically.
Next, I said that the drop in gas prices would improve the fortunes of Republicans this fall. Well we are beginning to see the results of gas price drops. In the latest Gallup USA poll, Bush's approval numbers are at 44% and the generic congressional Dem vs Rep ballot is tied at 48%. Both are way up from where they were just a month ago before gas prices fell.
Why? Because all of the supposed anger about the Bush administration is really centered around a simple pocket book issue... the price of gas. It seemed high and people freaked out about it. Now that prices are returning to normal, people are back to more traditional issues that consistently favor Republicans. Mainly national security, immigration, and taxes.
Lastly I have talked about the irrationality around people and gas prices. Well, OmniNerd has an article which quantifies the irrationality behind the worry of gas prices. The reality is that you can save more money than is spent on gas if you would just be picky about other goods you purchase were price volatility is much greater (such as food goods). I highly recommend the article to those who want to see the math behind such rationality.
