By Steven Mufson
Washington Post Staff Writer
Friday, October 6, 2006
In mid-May with gasoline prices at $2.95 a gallon and rising, 15 percent of Americans listed high fuel prices as their top concern, outstripping terrorism. And much of the public seemed ready to vent its wrath on President Bush and the Republican-led Congress.
By early September, though, with the nationwide average at $2.73 a gallon and falling, only 5 percent of those polled said that the price of gas was the single most important issue, according to a Washington Post-ABC News poll. Since then, the price of gasoline has fallen even further, now down about 70 cents a gallon from its peak in August -- with only a month before the elections.
A lot of Americans don't think so. "This has been huge fodder for talk radio," said Tyson Slocum, director of energy programs at Public Citizen, who says he has appeared on about 15 radio shows focusing on whether the Bush administration is manipulating oil prices before the congressional elections. "I don't think the influence is as explicit as some people out there are alleging. But all markets are susceptible to politics, and oil is no exception."
Generally, oil experts, executives and traders cite other explanations for the recent steep fall in prices, including the easing of anxieties about possible armed conflict with Iran, the flight of financial speculators, ample oil inventories and softening U.S. demand. Prices, they say, are the results of decisions made by people ranging from pension fund managers and oil executives to traders and ministers from the Organization of the Petroleum Exporting Countries.
But the roller coaster in oil prices this year without any supply disruption has fueled conspiracy theories about why gasoline prices went up and why they are coming down now. After seeing a Washington Post report about oil traders closely scrutinizing supply and demand, one reader responded online: "LOL!!!! They're looking at the approach of November elections!!!!! Care to wager how soon after the elections a 'catastrophic' event will occur to re-inflate the prices at the pump?????"
CNN anchor Miles O'Brien dismissed the conspiracy talk in a Sept. 25 gabfest. "Some bloggers are putting those two things together and, you know, this is the grassy knoll group," he said. More-sober analysts are also skeptical. "Paranoia is as American as apple pie," says Chas W. Freeman, former U.S. ambassador to Saudi Arabia. "This is all Michael Moore on steroids."
But politics have always flowed with oil. Here are some of the leading theories, and some possible explanations, for what is happening in the volatile oil markets.A Favor to Bush?
According to this theory, the Saudi government is doing Bush a favor by trying to bring down prices before the election. The evidence? Some say the Saudi government has a long-standing relationship with the Bush family. They also cite the 2004 book by author and Washington Post assistant managing editor Bob Woodward, "Plan of Attack," which said that then-Saudi ambassador to the United States, Prince Bandar bin Sultan, promised to keep oil production high enough to moderate fuel prices and bolster the U.S. economy during the presidential election year.
Now, with crude oil prices tumbling and OPEC members calling for production cuts, Saudi officials -- at least publicly -- are saying they will wait until the next meeting of OPEC oil ministers, which happens to be scheduled for December. "OPEC will be meeting I think within a month or two to review these factors, and we will discuss these things with countries like Venezuela and Nigeria," the Saudi ambassador to the United States, Prince Turki al-Faisal, told reporters after giving a speech in Washington on Wednesday.
But oil traders are worried that Saudi Arabia won't wait. Yesterday, oil prices closed slightly higher on reports that OPEC, including Saudi Arabia, has decided to cut output. A well-placed trader in Europe said the kingdom has quietly trimmed its output to 9.15 million barrels a day, from 9.3 million barrels a day, and that it has been talking about shaving a bit more if other OPEC members also cut back to stop the rapid slide in oil prices.
Most oil experts say Saudi Arabia generally tries to avoid conflict with the U.S. government, whether it is run by a Bush, another Republican or a Democrat. And Saudi oil policy opposes sharp upward or downward price changes so that consumers don't switch to non-petroleum fuels.
"Saudi production levels are keyed to moderating price increases, that's true," said Freeman, who was in Saudi Arabia during President George H.W. Bush's administration. At that time, Saudi Arabia opened its spigots to dampen prices as the United States prepared to free Kuwait. "But they don't really control them anymore," Freeman added. "[Saudi oil minister] Ali Naimi can't fine-tune prices for the purposes of influencing elections even if he wanted to." Freeman said that based on his conversations with Saudi leaders in 2004, "they would have been perfectly prepared to work with someone else if George Bush had been defeated."The Goldman Touch
According to this theory, Treasury Secretary Henry M. Paulson Jr. has asked his former partners at Goldman Sachs to dump gasoline futures to drive down pump prices and boost GOP prospects in November.
Goldman runs the most important commodity index, which serves as the basis for about $60 billion in investment funds. And the firm has been selling gasoline holdings. "Goldman has been liquidating its gasoline position, and that's put a lot of pressure on prices," said Citigroup Inc. oil analyst Doug Leggate. "It's a very large part of why gasoline has fallen."
Whether the sales are part of a conspiracy is another question. Paulson has said he severed all ties to Goldman when he became Treasury secretary -- and there are Democrats at Goldman, too.
Goldman has issued three press releases about its sales. In June, it said that because of U.S. government regulations it would replace unleaded gasoline futures, which will be terminated, to futures in reformulated gasoline used in blending with ethanol. But then on Aug. 9, Goldman said it would reduce the gasoline portion of its index, sparking a steep one-day plunge in prices on the New York Mercantile Exchange. Goldman sources said yesterday that the proportion of gasoline in the index has been reduced by two-thirds.Tapping the Reserve
Some Americans think the Bush administration is secretly selling stocks from the Strategic Petroleum Reserve, the 687.7 million barrel emergency stockpile stored in Louisiana salt caverns.
Normally, the federal government is slowly building the reserve. But in April, Bush said he would take the unusual step of suspending additions to the reserve in the face of soaring gasoline prices. From May to September, according to an Energy Department Web site, there was no net addition to -- or subtraction from -- the reserve.The Big-Oil Theory
Are the big oil companies lowering prices to help the Republicans? "Politicians will fulminate about things, but it's the market that sets the price," said John Felmy, chief economist of the American Petroleum Institute.
But Public Citizen's Slocum argues that an indictment of BP PLC traders for allegedly trying to corner the propane market shows that oil giants can sway prices. Furthermore, he noted, big oil companies have political preferences. He said that 81 percent of the $63 million in political contributions made by major U.S. oil companies since 2001 have gone to Republicans.
But Slocum thinks the recent price drop isn't the result of a plot by big oil companies. Instead, he points to the flight of money invested by financial "speculators" in oil markets. "Do I think Karl Rove or George Bush is whispering in the ears of the oil companies? No. That's silly," Slocum said. "But some folks in the government sent strong signals to the speculators. Was that related to the elections? I don't know."