Gas prices have not doubled under the Obama Administration. Folks who continue to repeat this myth, including my dear brother, are simply wrong. Then why does this “untruth” keep getting repeated? Because the proponents of this urban legend are providing selective data to their audience. What? Cherry-picking facts? Comparing apples to oranges? No, they say, my news source wouldn’t lie to me! Especially not so close to an election of Epic Importance!
Well wake up Dorothy, you’re not in Kansas anymore.
Gas Prices Comparison 2008 vs. 2012
Let’s look at some actual third-party data, shall we?
In August 2008, average gas prices at the pump were $3.74 per gallon. In August 2012; $3.74 per gallon. The price per gallon for diesel (which has a bigger effect on the cost of consumer goods) $4.21 per gallon in 2008, $4.03 per gallon in 2012. My graphics are a bit hard to see, click on each of the comparison charts to see them better.
But you’re only choosing one month! say the critics. Well let’s look at some other months.
Wow, look at that! In 2008 diesel was 28.5% HIGHER in July and 26.5% HIGHER in June than it was in 2012. So that means gas prices have gone down under Obama? Well for the month of June and July, indeed they did.
Okay Amy, you say — those are Summer months, gas prices always go up in the Summer. Then let’s look at May, before Summer vacations begin.
And after Summer vacations are over?
You will note that prices at the pump for you and me (unless you drive a semi) are roughly the same in May and September 2008 as in 2012. But that cannot be! What is Bill O’Reilly* talking about? He keeps saying gas prices have soared! (He says it again when he debates Jon Stewart in the Rumble in the Air-Conditioned Auditorium!) I know, you say, they have doubled under Obama! I’ve seen a chart somewhere that says so!
There! That’s it! See gas prices were going down in 2008. Look at the big downward spike! Look! Look! Look!
What is that big drop anyway? Well that chart represents gas prices in quarters. The top of the big downward line is August 2008, the bottom is November 27, 2008. What happened? Well Obama was elected in November 2008. Could that be it? I mean isn’t that when we bailed out the banks and Wall Street? I know he was responsible for that, wasn’t he?
History lesson. The Republican-controlled Senate passed the $700 billion bank bailout bill on October 3, 2008. Under President George W. Bush. Barack Obama was elected on November 3, 2008. Barack Obama took office on January 20, 2009. So, just as the Wall Street bailout occurred before Obama took office, so did the rise in gasoline prices. In fact, when George W. Bush took office in January 2001, average price per gallon was around $1.76 per gallon in California.
Gas Prices Fall Following Hurricane Ike
Who remembers Hurricane Ike? I do, because it wiped out one of my late father’s favorite restaurants, and most of Galveston. Hurricane Ike formed on September 1, 2008. Oil rigs started shutting down and evacuating in the Gulf of Mexico. On September 13 at 2:10 a.m. Hurricane Ike made landfall at Galveston, Texas – a direct hit. Hurricane-force winds extended 120 miles (195 km) from the center and tropical storm-force winds extended far beyond that. Roughly 50 miles north, Joe, his two children and I were huddled in an inside closet in a friends house, and we could fill the place move.
The impact on Houston – the fourth-largest city in the nation, home to N.A.S.A. and the Texas Medical Center, the “energy capital of the world” – was huge. Damage has been estimated at $54 billion*, which would make Ike one of the costliest U.S. storms ever. *(Source: Houston Chronicle)
Due to its massive size, Ike caused devastation from the Louisiana coastline all the way to the Kenedy County, Texas region near Corpus Christi, Texas, with additional flooding and significant damage along the Mississippi coastline and the Florida Panhandle.
Wait, that’s the entire Gulf Coast, where nearly 45 percent of U.S. gasoline is refined. Wouldn’t that make gas prices go up instead of down? That is so weird. That makes no sense at all.
An Investigation into Gas Price Increases between 2004 and 2008
The Commodity Futures Trading Commission (CFTC) thought it was pretty weird as well. So much so, that it launched a Federal investigation into speculation. They uncovered some interesting stuff. After the housing bubble burst, Wall Street traders needed the next big thing to make money on. They chose oil. So instead of releasing oil shares into the market, they held onto them in hopes that the price would go up. Oil companies played along by collecting crude oil from a variety of domestic and overseas oil fields and filling up storage tankers in the Gulf of Mexico. When Hurricane Ike hit, there was no place else to store the oil, so they had to release it into the market. The futures prices took a hit, so traders tarted dumping oil shares. As a result, the price came down. Way down. That’s when the CFTC got interested. In March of this year Congress asked the CTFC what they were doing about it. You can read the letter here.
An ABC News investigative piece reported that CTFC Commissioner Bart Chilton cited an obtained Wall Street research paper written by Goldman Sachs, which revealed how the firm’s own research quantified specifically how much it estimated the price of oil would rise with each large speculative trade. In other words, they came up with numbers on how much gas prices would go up each time there was a big trade of oil futures.
So what’s going on with gas prices now? (Click the chart for the underlying source.)
That pesky Dodd-Frank Act, (aka The Wall Street Reform and Consumer Protection Act) the bad, bad, law that you heard GOP Candidate Willard “Mitt” Romney lambast in last week’s Presidential debate includes increased oversight on Wall Street traders, like those responsible for manipulating the price of oil from 2004 to 2008. An approaching October 12th deadline of the Wall Street Reform Act (Dodd-Frank) has lobbyists losing their minds. So much so, that Commissioner Chilton is suddenly asking for a time out. Which is pretty amusing coming from the regulator who wrote Ponzimonium which includes in “About the Author” He has often been a lone voice on the Commission for policies to rein in speculative interests and impose position limits to avoid excessive trading concentration.
At this point, if you have not re-routed your browser to The Drudge Report, Fox News, or Tea Party Patriot dot org, you’re thinking, “Okay Amy we know you like to rant about politics. We know it is an election year. And we know you live in the state that benefits most from relatively un-regulated Big Oil…”
What is your point? What does this have to do with wine?
Hong Kong, Not Parker Pushing Up Price of French Wine
We all know the effect a Parker rating has on wine. A 96 from e-Bob, and wines sales go nuts, an 89 may doom it to a flash-sale site, costing the winery significant profits. In a post reviewing the book “Why the French Hate Us” by Campbell Mattinson, In The Picture‘s Kim Brebach writes about French wine before Parker. “At the time, you could buy third-growth Bordeaux like 1978 Chateau Montrose, Ducru-Beaucaillou and Pichon Longueville Comtesse de Lalande for around $30. Good Burgundies cost a bit more, and great Sauternes & Barsacs a bit more again – about $60/70 for a full bottle of Rieussec.” In making the case for Australian wine, he goes on to discuss how speculation led to outrageous prices.
I think it was in the early nineties that brain US surgeons and Wall Street types drove the prices of French wines up, in a Robert Parker-induced frenzy. Parker is to wine what Steve Jobs was to Apple. Then the Hong Kong Chinese got into the act, pushing up auction prices at Christies and Southebys. Bordeaux and Burgundies floated out of reach of ordinary people, the premier grand crus soon fetching a thousand dollars or more.
In May 2010, Decanter predicted prices for 2009 Bordeaux to soar due to Hong Kong speculators, based on a Decanter survey.
“As Simon Zhou of Ruby Red Fine Wines in Shanghai said, ‘speculators will be the biggest buyers of 09 Bordeaux. Wine drinkers … will not buy as enthusiastically as most overseas trade and media seem to think.’
Predictions came true as the cost of Bordeaux rose significantly in October 2010, when the price of Château Lafite Rothschild 2008 rose by 20% overnight after it was announced bottles would be marketed in China with the Chinese symbol for the number 8, regarded as lucky and leading to wealth and prosperity. It peaked in January 2011 when its average trade price rose to £14,043 a case. ($22,665 U.S. at today’s conversion rate.) By January 2012, according to Decanter, it had fallen 45% to £8,108 ($13,086 U.S.)
Still too rich for my blood. But it seems that score had less to do with release price than anticipated trading demand. While the difference between 2002 and 2006, both rated 95 might be attributed to changes in economy or production, how can one account for a 2008 92-rated Lafite release price at over three times that of a 95-point 2006 vintage?
Speculators, Not Regulators, are Bad for Consumers
Economics 101 taught us all Adam Smith’s Invisible Hand Theory. According to this theory, constantly cited by opponents of regulation, each of us, individually, acting in our own self-interests, generates a demand for goods and services that compels the market to deliver those goods and services in the most efficient manner. Sellers do this so that they may receive compensation from buyers and make a profit in doing so. In this “free market” process, resources are allocated in the most efficient manner.
But in the 18th Century, Adam Smith did not anticipate an unregulated Wall Street, or Hong Kong. He never took into account a hoard of greedy traders making untold billions by trading futures on the price of goods, and in turn, having a direct impact on the price of the goods.
Speculators drive up the cost of goods to consumers. Unregulated speculators cost you and I our hard-earned wages not just at the wine merchant, but every day at the gas pump. Regulation does not increase the cost of good sold, but an unregulated Wall Street does.
Remember that in November. And Vote.