Stimulus at the Pump

A fall in the fuel price enhances
The state of the nation's finances,
And the drag it removes
Most likely improves
The incumbent's electoral chances.

Most Americans have likely noticed a fall in the price of gasoline over the last month. The US Energy Information Administration reports that the price at the pump now averages $3.79 a gallon, down 3.8% from the 2012 peak of $3.94 on April 2. Some of the causes of this happy development include: softer demand due to the weaker economy, a drop-off in perceived tensions with Iran, additional refinery capacity and improvement in crude oil distribution logistics. As the incumbent's political fortunes seem to rise and fall inversely with the price of oil, one may now expect joy and consternation respectively in the Obama and Romney camps. Though, aside from the conduct of Iranian relations, the White House has little impact on short-term petroleum price movements, they may nevertheless reap some political benefit as the price of gasoline backs away from the feared $4-a-gallon threshold.

$2.50 Gasoline?

An economist, questioned on her view
Of the tools in the President's purview
To cheapen our gas,
Responded: "Alas,
Cheaper gas isn't what would best serve you."

"If to prices in Europe we liken it,
We should surely impose a tax hike in it,
For unless it is dear,
We're too cavalier
For pooling or busing or bikin' it."

"The high price of gasoline" has loomed as a political theme this year, as sharply rising fuel prices have coincided with the US Presidential primaries. And yet, most economists agree that the problem with American gasoline prices is that they are too low, and encourage an excessive level of consumption. Noted behavioral economist Richard Thaler, in a New York Times op-ed piece entitled "Why Gas Prices Are Out of Any President’s Control," argues for higher gasoline taxes and points out that Greg Mankiw, advisor to Mitt Romney (and former advisor to George W. Bush), is among the prominent advocates of this policy. A gradual hike in gas taxes would give drivers the right incentives and help to reduce the federal budget deficit. However, in a political season in which one Presidential candidate - with a straight face - claims that his policies could bring about $2.50-a-gallon gas, no other candidate, whether incumbent or challenger, can safely endorse a sensible gasoline tax policy.

A Crude Iranian Conflict

If an outbreak of Persian hostility
Brings petroleum price volatility,
The economy's cooling
From trouble in fueling
The engine of upward mobility.

Tensions with Iran over its nuclear program have introduced a new round of uncertainty into global strategic affairs, but one thing is definite: if Iranian supply is taken off the market, rising oil prices would impinge on almost every aspect of the US economy. Higher gasoline prices would cause consumers to cut back on discretionary spending, as most have a limited ability to cut back on driving. Manufacturers would be hurt both from higher delivery costs as well as higher prices for plastics and other petroleum-based materials. Even many service industries maintain fleets of vehicles and would feel the effects of a Persian Gulf conflict. The one bright spot at this point is that the prospect of $4.50 gasoline, as in 2008, appears as yet remote.

A Refined American Export

The GDP targets we've missed of late
Makes Americans' fuel use desist of late,
But with fuel usage surging
In markets emerging,
We ship more petroleum distillate.

The Wall Street Journal recently reported that booming US exports of gasoline and other refined petroleum products would soon make America a net fuel exporter for the first time in 62 years. Though still the world's leading importer of crude oil (that's right - we're still dependent on "foreign oil"), the US' huge and growing refining capacity feeds the demand from growth markets such as Mexico, Brazil and Singapore. Even moribund Europe are "PIGS" for Yankee petrol. Of course, there is a dark side to this good news: the net export balance is helped by our slow economy, which has reduced US fuel consumption.
Graphs courtesy of The Wall Street Journal.

Unrefined Reversal

On the global commodity bourses,
Crude oil is subject to forces
Like the gasoline price,
Which, when high, may suffice
That the market puts carts before horses.  

A sudden, 8.6% plunge in the price of crude oil to $99.80 a barrel yesterday originated with a surprising source: the high price of US gasoline.  Fears of an imminent "double dip" into recession have been fed by gas prices approaching $4/gallon.  Oil, which - though the main ingredient in gasoline - is sensitive to economic cycles, was evidently poised for a break to the downside.  All that was needed was a surprisingly bearish announcement, and the market got two: European Central Bank President Jean-Claude Trichet implied no imminent hike in euro interest rates, which strengthened the dollar; and new jobless claims were higher than expected, which weakened the US growth outlook.