The Oddities of Election Year Gasoline Prices

Photograph by Daniel Acker/Bloomberg

Among the many gasoline-related conspiracy theories out there is the one that says national elections cause gasoline prices to fall. It’s true that prices do tend to decline in the run-up to Election Day—as they have, nationally, over the past two months. It’s also true that they do the same thing in years when we’re not voting. The effect, however, does appear to be greater in election years.

From 1991 to 2012, national gasoline prices fell by an average of 3.27 percent each year between the July 4th weekend (when demand tends to peak) and the first week of November. During presidential election years, prices fell by more than twice as much, 7.6 percent. Factoring in congressional election years (every even-numbered year), the average price decline is 5.35 percent. The smallest effect happens during odd-numbered years, when no candidates are running for the House of Representatives or Senate, though five states do hold gubernatorial elections. In those years, prices declined by only 0.6 percent.

Those election-year results include the whopping 45 percent price decline that happened from July to November in 2008. Remember, the national average price for a gallon of gasoline hit an all-time high of $4.17 during the week of July 4, 2008. By the time Election Day rolled around four months later, it had fallen by almost two full dollars. Still, when you strip out 2008, presidential election-year gasoline prices fall by an average of 6.5 percent from July to November.

I must say, these results are more stark than I expected them to be. I’m reticent to draw conclusions. The sample size is way too small, and there are far too many external factors that determine gasoline prices to say that something significant is going on. For lack of a better explanation, I’ll revert to the old standby: “Correlation does not imply causation.”

Also, just because the average points in one direction, this doesn’t mean it’s true every year. For example, in 2004, prices rose by 4 percent in the four months before the election. They also rose during the same months of 2002, 2003, and 2005. The driving factor appears to have been surging demand from China, which was approaching the heights of its double-digit growth, rather then any strange U.S.-based election-year phenomena.

As fun as it may be to think that some hidden political hand is manipulating gasoline prices in the run-up to elections, it’s just not true. Presidents have virtually no power to affect gasoline prices. Even releasing the Strategic Petroleum Reserve tends to be ineffective.

That’s not to say that incumbent presidents don’t benefit from cheaper fuel. National gasoline prices have fallen by 37¢ (9 percent) since peaking in mid-September (though they’re still 16¢ higher than they were on July 4th). Two months of falling prices have certainly played into the steady rise in consumer confidence we’ve seen recently, which in turn has likely helped President Obama’s re-election chances.

The biggest reason behind those falling prices is that speculators have been pulling out of the futures market. In mid-September, money managers held the equivalent of 542.6 million barrels of crude oil. As of Oct. 30, they were holding just 405 million barrels. And remember, President Obama wants to limit speculators’ ability to place bets on oil prices.

Still, for all those conspiracy theorists who remain, here’s a further morsel: Tuesday’s election likely boils down to who wins Ohio, where prices have fallen by 55¢ since mid-September—one of the biggest declines in the country.

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