The Myth of Election Year Price Manipulation

It seems that every election season, conspiracy theories arise that the oil companies are trying to bring down gasoline prices in order to influence elections. The thinking is that oil companies tend to favor Republicans (true) and that they bring prices down to help Republican candidates. When I hear this sort of talk, I try to explain to people that U.S. oil companies control so little of the world oil market that there isn’t much they can do to influence prices. They simply don’t have the stroke that people think they have.

But a poll in 2006 showed that nearly half of Americans thought Bush had successfully manipulated prices down as the election approached:

Almost half of all Americans believe the November elections have more influence than market forces. For them, the plunge at the pump is about politics, not economics.

Retired farmer Jim Mohr of Lexington, Ill., rattled off a tankful of reasons why pump prices may be falling, including the end of the summer travel season and the fact that no major hurricanes have disrupted Gulf of Mexico output. “But I think the big important reason is Republicans want to get elected,” Mohr, 66, said while filling up for $2.17 a gallon. “They think getting the prices down is going to help get some more incumbents re-elected.”

No doubt that incumbents like to see gas prices falling ahead of an election. But having any power to influence price is a different matter. Since gas prices are once again falling as we head toward an election, I thought I would try to put this myth to rest. So, I decided to tabulate the price behavior of gasoline stretching back over the past three presidential elections. I chose to track the price from the beginning of summer driving season – Memorial Day – until the first part of November when the elections take place.

The results are shown below:

Year Memorial Day November 1 % Change Comments
1996 $1.32 $1.27 -3.8 Presidential election (PE)
1997 $1.26 $1.22 -3.2 No elections (NE)
1998 $1.11 $1.05 -5.4 Congressional elections (CE)
1999 $1.15 $1.27 10.4 NE
2000 $1.58 $1.57 -0.6 PE
2001 $1.74 $1.25 -28.2 NE; 9/11
2002 $1.43 $1.49 4.2 CE
2003 $1.53 $1.58 3.3 NE
2004 $2.09 $2.08 -0.5 PE
2005 $2.14 $2.42 13.1 NE; Hurricane Katrina
2006 $2.94 $2.25 -23.5 CE; refining capacity recovers
2007 $3.25 $3.06 -5.9 NE; gas prices set records
2008 $3.99 ? -? PE; gas prices set records

Table 1. Comparison of Gasoline Prices Between Memorial Day and Elections Source: Energy Information Administration

Personally, I think one would be hard-pressed to find a pattern there. The biggest price drop happened in a non-election year, albeit it was an anomaly caused by 9/11. Of the thirteen years recorded, gasoline prices fell between Memorial Day and November during nine of the years. This is what I generally tell people: Prices fall for seasonal reasons, and do so even when there are no elections. The reason prices fall is that demand for gasoline falls after the summer. The price generally peaks in early summer, and following Labor Day in early September the price falls.

Of the presidential election years, the price fell in 1996 when President Clinton was running for reelection, was essentially unchanged in 2000 and 2004 when President Bush ran against Al Gore and then John Kerry, and will almost certainly fall this year as oil prices pull back from their record highs.

In fact, if you take out the major anomalies on the graph – the slowdown caused by the 9/11 attacks, and the 2005 run-up of price in the wake of Hurricane Katrina, followed by easing in 2006 as refineries recovered, the truth is that gas prices usually don’t change dramatically – election year or not.

So why does this myth persist? There are a couple of reasons I can think of, but I think they generally fall under the category of confirmation bias. There really isn’t a strong pattern of gas price behavior (other than a stair-step up year after year); people just notice it in an election year. In addition, because prices rise and fall over the course of any year, you can always point to a price drop in an election year to support your biases. But if you use objective analyses (e.g., start and stop the price check on the same date every year) the non-pattern becomes obvious. Had I allowed my dates to be variable, no doubt I could have shown prices falling during any election year. Or, I could have shown them rising.

As for the idea that the president has that much power, all he can really do is go with his hat in hand and beg the Saudis to pump more oil in an attempt to ease prices. OPEC has indeed had historical pricing power, but even that is eroding as spare capacity dwindles. But the idea that Bush can pull any strings and get Big Oil to manipulate gas prices demonstrates that people give him, and Big Oil for that matter, far too much credit. Besides, as Joanne Shore, an analyst at the EIA noted in the previously linked article “What company in their right mind would step forward to kill their profit?”

29 thoughts on “The Myth of Election Year Price Manipulation”

  1. Two other angles that make this my fav oil myth, one of the silliest around….

    First, noting that gasoline prices are primarily driven by oil prices, ask the mythologist to look at oil price behavior in any country he wants. Pick a few that are presumably hostile to Republicans, like Venezuela, Iran, and Russia. If oil prices are falling in the US, they’re falling in those countries too. Does it mean that Chavez, Ahmadinejad, and Putin (or OK Medvedev) are secretly pulling for McCain too? Were they rooting for Republicans in 2006? For Bush in 2004?

    Second, calculate the cost of this gamble. Ask someone who believes the myth to estimate what gas price discount, and for how long, would be sufficient to buy a vote. Let’s say, what, 50 cents for 5 months (or use historical figures)? At 375,000,000 gallons of gasoline per day, this scam would cost the oil industry $28 billion. I think it would be kind of tough to talk all 54 or so US refiners to play this game.

  2. Is that Memorial Day 2008 price (last row of the table) correct?

    No it wasn’t. I had my columns offset, and had originally copied that first row all the way down. I just didn’t get that last row fixed. Thanks for the heads up.


  3. Gustav looks like its gonna smack some rigs around in the Gulf. That’s good for a $20 or $30 pop. Right now,it’s looking like New Orleans might’ve drawn the short straw again. We hit LA for Katrina and Disneyworld Orlando for Rita. I’m thinking Branson would be nice this year.

  4. OT: Robert, I’m seeing a lot of ads on your site for clean coal. It’s a bit disconcerting, not that any of us regular readers are in doubt about your stance on the environment. Are these being generated by some sort of blogger heuristic that’s not under your control?

  5. I’ll admit to some bias in terms of not watching what the prices do all the time. I do not believe that the oil companies are controlling the price of oil and lowering them during election years.

    However, in 2004, I notice that gasoline prices were dropping even while oil prices were rising. I thought this odd, because you always here how gas stations will raise their price immediately when oil prices rise, and lower them slowly when oil prices drop.

    At the time, I came across a California website which is sometimes used to make sure there’s no price gouging. So I looked at those weeks when the gasoline price was falling as oil prices were rising, and I found in some cases that the refiners were taking a loss.

    What company in their right mind would step forward to kill their profit? All I could figure was that they wanted Bush re-elected.

    Granted, after a long summer price decline, gasoline prices jumped up in the fall before the election. My confirmation bias wrote that off as saying the refiners (which are often also oil producers) absorbed as much profit loss as they could and finally gave in to rising oil prices.

    But this was before I was reading your blog and before I saw any of the weekly stock numbers. I’ve never gone back to see if that could explain why refiners would take a loss on the gasoline they sold that summer.

    Hoping you could take a look at that. If not, maybe some day I’ll get around to it.

  6. If you go look up US 2004 gas prices (weekly all grades all formulations retail), you’ll see that they peaked in the third week of October at $2.07. They were mostly in the mid $1.90’s for most of the summer. During election week, the price was about $2.05.

    Additionally, if you look further you’ll see that gas prices started falling from that October peak, down to $1.82 in January, before they passed $2.07 again in mid-March. They were losing money intentionally in summer and fall, but not in winter?

    I don’t see any pattern that would immediately make me assume that refiners were intentionally losing money (a pretty heroic assumption). Why would that be your first assumption, given all the factors that can impact gas prices?

  7. Its not a myth. Its happened a few select election years in the past. It wasnt orchestrated by gasoline retailers or Iranians or the Venz. It did happen very covertly back under R Reagan & Bush I. It was a Saudi delivered quid pro quo.

    It was very blatant in '88 when the Saudis vetoed an OPEC/non-OPEC production cut agreement in April of that year that slid '88 oil prices to $12. Low and behold everyone came to terms in Nov of '88 and crude prices immediately spiked to $22 right after the Bush I election. '92 saw similar action. It didnt transfer into the Clinton administration and the Saudis dont like W.

  8. I can’t seem to find the page with the breakdown of the California gasoline prices with refinery costs separate from profits. Maybe I’m remembering wrong. is not letting me check to see if it used to show costs separate from profits.

    Anyhow, I did not find it at all strange in the winter after the 2004 elections when the price of gasoline dropped along with the price of oil, and rose again when the price of oil rose. So the summer of 2004 is still of mystery to me as to why gas prices went down when oil prices were rising. (I still haven’t checked inventory levels.)

  9. Are these being generated by some sort of blogger heuristic that’s not under your control?

    Yes. I have no control over the ads. They trigger off of various words in the blog. The coal ads could be triggered by something as simple as “energy.”


  10. “It was very blatant in ’88 when the Saudis vetoed an OPEC/non-OPEC production cut agreement in April of that year that slid ’88 oil prices to $12.”

    In 1988, WTI Spot stayed within the range of $14 to $18 for all but a few weeks of the year. The low was reached in September at $12.62. On Tuesday Nov 8, 1988, WTI was $13.70.

    WTI stayed in the same $14 to $18 band until January 1989, and did not reach $22 until April 1989.

    “1992 saw similar action. It didnt transfer into the Clinton administration and the Saudis dont like W.”

    In 1992, WTI Spot rose from about $18 in early January to around $22.50 in June. It stayed between $22 and $23 until mid October. On election day it was about $21. It then fell to $20 by end December.

    You’re not very convincing. Do you have any evidence for your claims? Your explanation should also incorporate the observation that oil and gas prices are generally weak every autumn, not just election years.

  11. clee,

    RR is more of an expert than I am, and you’re asking him anyway so I won’t say much …. but I just want to point out that if you go check historical oil and gas prices, and overlay them in a spreadsheet graphic, you’ll see that gas prices do sometimes fall when oil prices rise. Go look at May 2007 for example. It doesn’t automatically mean foul play. There are other explanations.

  12. RR said: don’t have the stroke

    Get’s him a premium Deutche Bank Ad for watching the PGA Tour.


  13. Get’s him a premium Deutche Bank Ad for watching the PGA Tour.

    That’s funny! I need to start writing about litigation. My understanding is that lawyers pay the highest prices for ads. So I need to drop some words like “personal injury” and “asbestos” in some of my stories. 🙂


  14. Maury:
    The oil bull is dead. The demand is not there. The hysterical sniveler-doomer websites and the oil speculator-quislings are trying to so another Hurricane Gonu, but oil is down anyway.
    It was an epic run for oil; it matched the 1990s boom.
    But all booms go bust.
    There was a few bucks run on Gustav, on the heels of the Russian thug-paw swatting at Georgia pipelines.
    But this market is dead. A dead cat bounce. They are whipping a dead horse. It is a dead duck. Don’t let your goose get cooked.

  15. Robert, though the evidence generally supports your argument with respect to election-year manipulation (on which we agree), it says nothing about gasoline price manipulation in general. You may be overlooking another important perspective on this issue.
    1. Although "big oil", as you say, has very little influence on OIL prices, they certainly have nearly ALL the influence on U.S. gasoline prices.
    2. As a competitive business, it doesn't take all the refining companies to manipulate prices: the big two or three integrated oil companies have plenty of pricing influence
    3. What's in it for them to lose money selling gasoline? Plenty, actually…it's called "Windfall Profits Tax". A WPT would cost them very big money…and especially the integrated companies… because it would apply to ALL the oil AND nat gas they produce…not just the gasoline they sell. And it could last for many many years. It would likely cost them MUCH more money than a few years of lost gasoline profits.
    4. Knowing that the congress is getting dangerously close to imposing just such a tax, the incentive is high for the integrated oil companies to lose money on gasoline in order to keep the public, which is much more sensitive to gasoline than oil prices, from hounding their congressional reps and senators.
    5. The fact that EXXON is divesting its refining and retailing business tends to support this hypothesis. The OIL&GAS business is much more important to them than the refining business.
    6. I am myself strongly opposed to another Windfall Profits Tax (having seen the effects of the first one), though I support eliminating tax subsidies (not deductions available to all companies…subsidies directed specifically to the oil industry)… but that's another subject.
    7. We'll never resolve this issue of course – but it's much harder to disprove than election-year price manipulation.

    Looking forward to seeing and hearing you in Sacramento!

  16. armchair261,
    Thanks, that’s a good counter example. At first, I didn’t think one month was much, but in CA at least, gas prices dropped significantly while oil prices rose for 3 months, May through July 2007, not an election year.

  17. A WPT would cost them very big money…

    And even though gasoline prices have softened, they are still making record profits. So what real difference would it make?

    Big Oil is not an entity. To pull off the kind of pricing power you imply would require massive collusion.

    The reason the discussion seems so silly to me is that I used to be involved in pricing discussions when I was at the refinery. We sometimes talked about how we were viewed politically, but we certainly never changed prices in an effort to change that view. After all, if we lowered our prices (and sacrifice some profits) in order to curry some kind of political goodwill, what happens if nobody else does? We just flushed profits down the toilet.


  18. tommyguy,

    A few other problems with your idea.

    1) I don’t know the exact count, but this isn’t far off. There are maybe 8 integrated refiners, and the other 45 or so have basically no exploration or production business. The 45 others account for 55% of refinery capacity. I don’t think they’d go along with this ruse.

    2) If the integrateds tried it anyway, then I think the other 45 would keep prices high. The retailers would be buying cheap gas and market priced gas. The cost to consumers? I doubt the retailers buying the cheap gas would be wanting to keep the prices low. Knowing that 55% of US gasoline will have to be higher priced, they’d tend to try and price to that segment. I believe that the integrated refiners would just get sabotaged by the retailers.

    Such a move by the integrateds would place severe strain on the pure refiners who don’t have the production cushion. We should see statistically poor 3Q performance relative to the integrateds if they attempt to compete on price. I’m not going to go research this, but I bet there is no such effect.

    3) What about arbitrageurs? If gasoline was artificially low in the US, wouldn’t we see an upturn in gasoline exports to overseas markets with higher prices? After a scan through the EIA’s gasoline exports data, I didn’t see such an effect in election years.

    4) Compare recent election year gas prices in other countries to those in the US. I’ll bet you’ll see similar patterns.

    5) Let’s say it’s 2004. Gas was selling for around $2.00 during the election. It was even less in earlier elections. If the average person buys 600 gallons of gas per year, then an election year gamble might have saved him $75 or so over 3 months if prices dropped 50 cents. That’s $25 per month. Less than a dollar a day to buy a vote? Doubtful.

  19. Ah, Robert and RR…Don’t fall into the trap of resisting the obvious facts to protect your admirable faith in corporate management.

    Here’s what Gail the Actuary had to say on TOD recently in discussing the rather extraordinary drop in crack spreads over the past year:

    “If a refinery is part of a vertically integrated oil company, it may be willing to live with very low refining margins, because even with these low refining margins, the profitability of the company as a whole is adequate compared to non-petroleum companies. In fact, vertically integrated petroleum companies may actually prefer these low refining margins, because with “normal” refining margins, there would be great hue and cry for excess profits taxes on these companies. If margins are low, vertically integrated companies may be using refining losses to offset part of the profits generated by, say, producing oil at $50 a barrel and selling the refined products at current prices.”

    …”I doubt that any politician would challenge artificially low refining margins for gasoline, since it means lower gas prices for constituents. In fact, pressure from politicians may contribute to the relatively low gasoline prices we see.

    Gail also addresses some of your other points:
    “When it comes to buying gasoline overseas, these lower prices may not a huge problem, because the gasoline that is on the market is surplus gasoline, produced as part of the refining mix. Producers of the gasoline may be willing to take any reasonable price, if other buyers are not available… The problem, of course, is that if gasoline prices are depressed for any reason, non-vertically integrated refineries are at a huge disadvantage. They are forced to buy crude oil at a high price and sell gasoline at a low price, because they have no other choice, and have no other companies in the group to share the poor results with.

    …If political influences are involved, it is possible that the situation could resolve after the next election…If refining margins continue at their current levels, I would expect many bankruptcies among refiners that are not integrated with companies that also produce crude oil.”

    I rest my case. Thankfully, I have stock in many integrated oil companies to offset my Valero(!) Let’s hear some factual arguments that Gail and I are both wrong. TommyGuy Atkins

  20. tommyguy,

    I don’t see that you made a case. Your friend Gail just said that, basically, “it’s possible that the integrated companies could do this and still be profitable,” and then “politicians wouldn’t stop it if they knew what was going on.” Kind of like saying “the defendant is guilty because he’s strong enough to wield a big knife, and no one would try to stop him.”

    Ask Gail to construct some plausible cash flow models of the conspired investment in lower gas prices. The year one investment would look something like this:
    4 months price fall @ 45 cents per day x 55% of refined products from integrateds x 9000000 barrels gas per day x 42 gallons per barrel = $11 billion.

    Then stream out plausible returns over the years and discount the result. Does it make sense? Are the NPV’s positive? What else could they have done with that $11 billion, apart from give their management big bonuses?

    Now add risk to the equation. Ask Gail to generate an EMV. We have to risk a) the chance that none of the conspirators would bolt and ruin the program; b) that the plot would get your man elected; and c) that if elected you’ll get your benefit.

    My own guesses are a) 25%; b) 33%; c) 67%.
    25% because I think the temptation to bolt would be huge. 33% because the lowered price is not huge and would just be another factor in the voters’ equation. It’s not a surefire strategy by any means. 66% because even if your man is elected, congress might not bite. Maybe rising oil prices would result in too much pressure for WPT anyway, after the 2010 elections. Who knows?

    Since all of these conditions need to be met, the probabilities are multiplicative. My guesses would mean a 5% chance that the plot would work. The investment suggests then that the NPV of the benefits would have to be in the $200 billion range to make this worth considering. But ask Gail to make a number of reasonable scenarios. Does your idea pass the smell test?

    Anyway, there is no historical evidence to support this accusation, as above comments have indicated. I’d call on Occam’s Razor here. There are much better explanations for oil price behavior in autumn than some complicated and tenuous conspiracies.

  21. Armchair:
    Let’s be honest: we’re all speculating here. I never made a claim that gasoline prices ARE being manipulated; only that it’s possible… and pointed out that it’s a scenario that fits current pricing facts.

    You say “There are much better explanations for oil price behavior in autumn …”. I’m not talking about Autumn…you may be. I’m not even talking election-year, though the likelihood of a WPT is probably different depending on the election outcome.

    It’s easy to say “there are much better arguments” if you don’t have to enumerate them. All I see are your “guesses”.
    I’m guessing your guess is as good as mine! My guess says let’s wait and see what happens to the crack spread and gasoline prices if we DO get a Windfall Profits Tax. Fill up your tank now!

  22. tommyguy,

    Well, I would say you are speculating, and that’s fine. You’re saying it’s possible, and of course it’s possible. But I and RR are listing some pretty decent arguments as to why it’s very unlikely.

    “It’s possible” is not very convincing evidence though. It’s also possible that the industry is seeding hurricanes to lower supply (I have actually heard someone make this claim). At some point the possibility becomes remote enough that it’s not really worth entertaining.

    Reasons for gasoline price movements are all over the web, you can find them. I didn’t feel a need to list them.

    I was referring to autumn because there are well known reasons for gas price weakness in autumn, such as lower demand as the sumer driving season closes. I think that that one reason alone is far more likely to explain any election year price behavior. People with an axe to grind fixate on election years but ignore other years.

    If it were a real phenomenon, someone would probably have some reasonably convincing or at least interesting statistical evidence by now, such as abnormal price swings or weaker 3Q refinery profits or rising US gas exports in election years relative to other years. No one has come forward with such evidence to my knowledge (that doesn’t mean it doesn’t exist). If the evidence doesn’t exist, then what is the basis for the speculation?

    The bottom line for me is that, intuitively, intentional price reduction seems like a very poor business decision, given the chance of success, the dollars involved in the bet, and the likely response from competitors. I don’t think it would work, I’m not convinced it would pay off, and I don’t think it would be very convincing to voters unless the drop was massive. And, I don’t think that gas prices were much of an issue to voters between the mid 1980’s and just a few years ago.

    But, let’s see what happens. 🙂

  23. by all means, armchair…we’ll see what happens. Believe me, in this case, I hope your smeller turns out better than my twitching nose.
    See ya!

  24. Let’s be honest: we’re all speculating here.

    I am not speculating, because I have first hand experience with the economics group in a refinery. So my comments aren’t speculation.

    The theory that refining might take a hit for the “greater good” is flawed on two major points. First, bonuses are based on how well your particular division did. I don’t get a bonus if upstream did well while refining didn’t (if I am in refining). Second, capital budgets are based on profitability of a particular division. Your capital gets allocated to where the most profits are expected to be.


  25. Robert,
    You’re overlooking the most realistic method for manipulating the oil price: rebalancing the commodity weightings of index funds. Prior to the election in 2006, index speculators were forced to sell $6 billion worth of rolling long positions in gasoline due to a rejuggling of the composition of the GSCI, and gasoline prices fell $0.82 in four weeks (details here).

    This manipulation didn’t require any conspiracy or coordination. It only required a single decision to be made by one company, Goldman Sachs. As noted by the references in the above cite, GS took a lot of heat at the time due to the strong appearance of manipulation, and later sold the GSCI to Standard and Poors.

  26. Thanks to RR posting elsewhere a link for weekly stock data, I can now look at gasoline stocks vs price in California from Memorial Day to Labor Day, election year 2004 as oil prices were rising.

    PADD 5 stocks went down from 8312 in May, to 8112 in September, as California gasoline prices dropped 11% from $2.33/gal down to $2.07/gal. If I look at only California gasoline stocks, and not all of PADD 5, there is a steeper 25% drop in stocks.

    The other time mentioned when gas prices went down as oil prices rose was May to July 2007, not an election year. PADD5 stocks increased 7% from 6647 in May, to 7103 July, as California gasoline prices dropped 11% from $3.46 to $3.06. Gasoline prices dropping as gasoline stocks increase, makes sense.

    Now I’m back to wondering why gasoline prices were falling in the summer of 2004, an election year, even as oil prices were rising and gasoline stocks were dropping. Though since I’m talking about California, re-election tactics seem implausible, since Bush had written off California and didn’t much bother to campaign here.

    Obviously I shouldn’t invest in gasoline futures, since I can’t make sense of the price movements even in hindsight.

  27. I appreciate the analysis, but I don’t think going back beyond the ‘w’ administration is worthwhile.

    The 2006 Election and now the 2008 Election are huge drops. It think it’s well within reason for oil companies to try and hedge their bets with the US petrol dollar. Lose money for two months and gouge for two years.

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