Because of some comments on one of my posts from a few days ago (as well as a post at OTB), a discussion has arisen as to the relationship between crude oil per barrel prices and the per gallon price of gasoline. The reason this has emerged is because some find it suspicious that gas prices have started to go down just as we are hitting election season.

This includes a statement, made at Anything They Say… by The BHC, which strikes me as, well, a bit off (to put it mildly):

The price of domestic gas is only marginally related to the price of oil

Indeed. And the cost of wood furniture is only marginally related to the price of wood.

This assertion is made in the context of explaining the rise in Bush’s approval ratings and an observed correlation between gas prices and those approval ratings. It indeed goes further than just making economically problematic statements to asserting the following:

We see a classic fascistic symbiosis here, not unlike what we saw with the recent Disney/ABC media hit on Democrats. While Republicans in control of the White House and Congress continue to wage war and threaten more of it, which keeps prices high — very high — the oil companies do their part to help the GOP come this November by briefly lowering gas prices in the run up to the election. This is a theory, of course.

Less theory and more wild accusation, I would argue. Still, I would ask: if oil companies can so easily manipulate price, why not just jack it as high as possible? And if they can so easily manipulate price, why do they need Republicans in office to do it? The logic doesn’t connect. (Further, since so much of the criticisms aimed at the Bush administration typically deals with its incompetence, the notion that it is somehow wickedly brilliant in this arena strikes me as amusing).

I would note the following (source: The Energy Information Agency within the DOE):

Note that the largest variable in the price of a gallon of gas is the cost of crude oil. Further, of the four variables noted, it is the most volatile. Hence, it is pretty clear that as world (note: world) oil prices go up and down, the price of gasoline will do the same.

Update: After the original post, I found the following, which is a more recent version of the graphic above, this from July 2024, which shows an increase in the relative significance of crude oil prices in the price of a gallon of gas, which further bolsters my point:

Indeed, the following chart (originally produced by Bank Credit Analyst and found here) shows this relationship quite well:

One will note that while the lines aren’t a perfect match, the correlation is quite clear: as oil prices rise, so rise gasoline prices.

I recognize that the chart does not encompass the last two years. I will endeavor to locate a better one, but I think this one makes the point rather clearly.

But, really: all this talk of control of gas prices in advance of the election wholly discounts economics and ignores the dynamics of the world commodity market for oil.