Why is the price of Oil falling?

Ramblings about oil, elections, and the economy – Part One

Demand in the US is down. Speculators make their money. Hedge funds that put billions into the sector, are running. And other ideas are being sloshed around.  i.e. Having made more money than any companies in history, American Oil companies can now bank it, and get an oil friendly replacement for the current oil friendly Chief.

Oil has a way of falling before an election.  Gasoline prices have fallen before federal elections almost every year since 1990,and almost always this has been attributed to supply and demand.

In 2006, oil fell $.85 from August to November before the elections, with oil futures on the New York Mercantile Exchange closing at $57.88 a barrel, down sharply from the record high of that year of $78.40 on July 14.

Today the price of oil started at $118, having almost hit 150 a barrel not a month ago.  Experts say that the weakening American economy means that America needs less oil.

Whatever the reasons, the oil and stock cycle in the months leading up to elections is a discussion that cannot be avoided.  Back in September, 2000, the NY Times wrote:

This will be the 26th presidential election since Charles H. Dow put his industrial average together in 1897. So far, its record as an election prognosticator is 22-3 — not perfect, but at least as good as the average pollster.

The indicator says that if the Dow rises from the end of July through the end of October — the three months when investors are most attuned to the political season — the incumbent party will win the election. If the Dow falls, however, the incumbents will be thrown out. Perhaps a rising stock market reflects contented voters.

If the current oil slide continues, propping up the Dow and the markets, it would put a John in the White House, according to the Dow factor.

Meanwhile, consumption of oil worldwide continues to rise at steady rates. China, India, and the developing world are chugging oil.  OPEC says that demand is up, however less than it was – in other words the world needs more and more oil everyday, but less that they thought it would need.

Domestically, the pressure to extract more oil from off-shore and on-shore drilling is great.  The campaign trail is being paved with arguments about energy policies, and who-can-drill-where arguments.  Not that more oil wells will lower the price of oil on a huge scale, or help our economy.   But it sounds good, as if every American’s patriotic duty is to drill for oil in their backyard to help America become “energy independent” or whatever that means.

Americans are changing their habits quickly to adjust to the $4 a gallon world, and that is good ultimately for America. Alternate energy sources and means of transportation are everywhere, and more Americans are using mass-transit than ever before.  But will falling oil prices convince Americans that the crisis is over, and that they can go back to driving Hummers, Yukons and Ecalades, and put a John in the White House?  Will falling oil prices kill Israeli electric car projects in Israel and in California?  Too early to predict the future, I say.