Thanks for debunking the oil election theory Lowell.  I'm not too keen on the oil companies and especially on Bush admin. energy and environmental policies either, but the notion among some Dems and others that the oil companies and Republicans could rig prices around elections is pretty silly and leads to equally silly policy proposals.

Great, so the butler didn't do it. But the macro price trends for energy remain a mystery to ordinary consumers.
What does explain these trends? China and India are still out there and there's not noticeably less turbelence in the oil producing countries than last summer, though all these factors were offered up on the talk shows to explain the record high prices in 2006. And there's still the puzzle of why big oil earned record profits last year, even as their CEOs denied to Congress that there was wholesale price gouging.
So what gives?

According to EIA's recently released January 2007 Short-Term Energy Outlook:

*"Warm December weather led to a decline in crude oil and natural gas prices. Between December 1 and the end of the month, the West Texas Intermediate (WTI) spot price fell from $63.48 per barrel to $60.85, and the Henry Hub natural gas spot price dropped from $8.67 per thousand cubic feet (mcf) to $5.67. For a review of notable events that occurred in petroleum markets in 2006, see This Week in Petroleum."

*According to the above-referenced "This Week in Petroleum," it's also an expectations game:

This past summer, U.S. crude oil and petroleum product prices rose, in part due to expectations about the coming hurricane season and the possibility of a supply disruption occurring in any number of countries or regions. The devastating impact last year's hurricanes had on oil infrastructure, along with forecasts of another strong hurricane season this year, led many oil market participants to buy additional contracts early in the year, with the expectation that prices could be much higher should hurricanes do similar damage this year or supply be disrupted overseas. However, when these expectations did not materialize, the sell off of contracts began and prices plummeted. Now, many market participants are judging that the risk of a supply disruption is very low and that oil demand growth is slowing along with the country's economy.

*I would also throw in the fact that an important UN Security Council deadline passed with regards to Iran's nuclear program, and...not much happened.  Now, that doesn't mean something WON'T happen in coming months, but for now, oil markets appear to be discounting the Iran disruption scenario.

Still, crude oil prices remain in the mid-$50's range, which isn't exactly a price collapse (or a reversion to the pre-2004 average crude oil price of around $20-$27 per barrel.

Lowell, this is one of your best posts.  factually based, non-condesending and non-partisan language in an area where you have subject matter expertise. 

The oil and gas prices pretty much mirror each other

http://en.wikipedia....

P.S. A piece on global warming using this same style of writing would propably be very beneficial. 

Here is the status of H.R.6 - To end subsidies for big oil and invest in renewable energy.  The House is scheduled to take up this bill that would end certain oil company incentives.

According to WashingtonWatch.com, H.R. 6 would impose a "conservation of resources fee" on oil or gas produced from certain federal land unless the companies pay royalties.

From Virginia, Scott (D-3), Moran (D-8), and Boucher (D-9) are co-sponsors.  The rest are planning to vote against this bill. Here is an easy form to write to them here!

This was written nearly two years ago, yet it appears to be playing out.

The financial markets offer another possible route to a sharp fall in oil prices. Pension funds have usually shunned commodities in the past, but in the past year or two they have poured tens of billions of dollars into securitised investments in oil, hoping for returns above those they can get on the anaemic stockmarkets. Mr Verleger (Phil Verleger, Institute for International Economics) worries that they have now developed a herd mentality reminiscent of the internet boom. As returns inevitably decline over time, the herd may turn tail and prompt a price collapse. In short, despite China's undeniable thirst and the shortage of global spare capacity, the oil-price boom may yet prove a bubble.

Oil in Troubled Waters, Economist, April 2005

You say that you worked as an oil market analyst, so apparently you made graphs/charts such as the one displayed here. I did not work in oil, I was a steelworker. From my experience with Charts/Graphs, the designer can make a chart read what ever they want it to say. It is so simple to impress others with charts and graphes I am amazed they are still in existance. Of course so many people believe the charts/graphs, I can understand why they are used.

Really now, just how much effort does it take to pick up the phone and tell someone to lower or raise their prices for no apparent reason or to put a bunch of speculators on the stock exchange to lower and raise the price of crude on the exchange. Heck they are probably using our tax dollars to drive the price up or down.

Charts/graphs show trends, but they do not show what is happening behind the scene for an industry that flucuates daily by the price of crude.

After wire taps, opening letters, getting banking information all in secret, can any one truly believe oil prices are not done in secret by this administration.

Smell the Roses, they probably smell like petroleum.

I agree that it's possible to display information in a misleading way, intentionally or unintentionally.  In this case, I can definitely say that I had no intention of being misleading, just that I wanted to emphasize the fact that oil prices didn't plunge before the election, then shoot back up again after the election, as some conspiracy buffs were saying in September and October.

As far as the oil companies are concerned, I will say again that I'm not a big fan of theirs.  However, there have been numerous investigations into "price gouging" and the like by the oil companies, yet to my knowledge, none have shown any widespread, systematic manipulation.  In addition, I have never read any serious analysis that either a) finds any unusual oil price fluctuations around elections; or b) attributes whatever price movements there might be around elections to manipulation or anything sinister.  If you've got any evidence to the contrary, I'd be very interested in seeing it.  Thanks.

I did not mean that you intentionally displayed misleading information. The charts you displayed were from the US Energy Administration and were not yours. I assumed you used them as a reference point for your post.

Strange happenings are hard to explain or find information. It usually takes years to find the information to prove or disprove strange happenings. When the oil Industry or a Republican Congress Investigates themselves I have a hard time believing a Government I no longer trust. Heck I would have a hard time believing a Democratic congress that investgates themselves. Bi-Partison? Take the 9/11 report. We all know by now they had select areas they decided to investigate, yet passed over pertinent information.

Being old enough, naiveness has left me and a Government I once trusted is gone forever.

Explanation for why prices dropped before the election:

The Speculators bet that oil was going to get scarce so they drove the price up to its highest price. When the election came they figured they were wrong and dumped that oil on the market, thereby driving prices down. Who where these speculators who could take such a loss? Really now, I have a bridge leading to no where I want to sell.

According to USA Today:

Gasoline prices dropped over the holiday weekend and are likely headed lower...The average retail price of a gallon of regular gasoline fell 4 cents from Friday to Monday to $2.233, according to auto club AAA and the Oil Price Information Service. That's the biggest drop over a three-day period since the end of September.

More evidence for my argument;  there's absolutely no truth to conspiracy theories about oil companies dropping prices prior to an election, then jacking them up again afterwards.  In fact, a situation closer to the opposite of that scenario has taken place in this case. 

Since the days of standard oil, we know that there have been repeated consipiracies to control the distribution, and price of this commodity.  In the face of repeated provable evidence of market manipulation consipiracies stretching back 100 years, it seems foolish to assume that we are not in that situation today wihtout clear and convincing evidence.  The burden of proof is on the oil companies to prove they are not manipulating prices.
Just because their consipiracy failed, doesn't mean it isn't there. Oil is in decline because supply was increased prior to the election in order to help Bush via lower prices.  The conspirators assumed that winter would soak up this production via seasonal heating oil demand.  The winter didn't come, which left them with a glut that continues to put downward pressure on prices.  It may also be that the Saudi's and others have lost their market making power because of so much price manipulation in the last few years.  It may also be that there is now a deliberate policy to continue the price drop because the election is lost (so who cares) and continued price drops hurt national oil companies of Iran, Russia and VZ.  In fact isn't it interesting that the price drops right after VZ moves to further nationalize its oil production. Dems move to investigate and renegotiate leases in the gulf.  Russia kicks Shell/XOM out of the far East.

to pump up their production in an effort to drive down prices in order to hurt their dreaded archenemy, Iran.  However, given that the Saudis have only about 1.7 million barrels per day in spare production capacity (out of total world oil demand of about 86 million bbl/d), it's going to be tough.  Also, I would point out that any attempt by the Saudis to drive down would also drive down their own revenues, which they need to keep a burgeoning population quiescent...

THanks for the EIA analysis, which if we can believe their explanations suggests a larger point. Do we generally over-politicize oil pricing with all these conspiracy theories involving OPEC and big oil companies? Perhaps crude prices are mainly demand driven after all, even though we recognize the role of expectations about uncertain future events such as hurricanes and political disruptions on the buying patterns of major players. Still, I don't quite get the oil companies claims that their astounding profitability during periods of high prices (such as 2006) is a normal ocurrence. It sure seems that their profit margins soar in such times, and that suggests more than "normal" pricing policies.

...but these play out in somewhat unpredictable ways.  For instance, the past couple years, the world oil supply curve has been nearly "vertical," whereby an increase in the price of oil results in barely any increase in oil supplies, at least in the short run (as we all know, "in the long run we're all dead" - yes, that's one reason economics is called the "dismal science!").  An additional factor, which relates to the vertical supply curve, is that over the past few years, OPEC has had minimal or even no "spare" production capacity.  This means that OPEC couldn't raise production to keep prices down even if it wanted to, leading to the strong possibility of OPEC losing control of prices on the "up" side. 

Meanwhile, we've had oil supply disruptions such as Hurricane Katrina, and we've had surging world oil demand, not just in China (although that country is extremely important in terms of marginal oil demand) but also India, the United States, and several others.  In sum, what we've had is the demand curve bumping into a "vertical" supply curve.  I can't draw it here, but if you can picture this, you can see how just a small increase in world oil demand  - especially at a time of geopolitical tensions and, in general, a "nervous" oil market - could results in large increases in price.  Put another way, it's all about the "marginal" changes in supply and demand, or one could also say changes "at the margins."  I know, this is why we all hated Econ. in college, but what can you do? :)

As far as oil company profitability is concerned, the general rule is that the majors make large profits "upstream" (on the production side), and lower profits "downstream" (on the refining and distribution side).  For more on this topic, see here.

I hope this helps!