Gas prices and supply issues

While I must admit I don’t trust the Bush Administration in many things, I still am skeptical that the fall in gasoline prices is a Bush plot for one important reason: the supply side. The scenario described in the New York Times story and subsequent fall in gasoline prices makes sense only if the supplies of gasoline were such that it was possible for prices to fall and there not be massive shortages.

So far, I have not seen long lines at gas stations, nor have I seen the “out of gas” signs that would surely be there if prices were falling without a corresponding increase in supplies or a fall in demand for gasoline. The Bush Administration is not capable of changing the laws of supply and demand.

Now, if the Bushies are magically able to create new supplies of gasoline through hocus-pocus and “manipulation,” then it would be a magical regime, indeed. It sure couldn’t do that in the wake of Katrina and Rita last year.

In other words, while the Goldman-Sachs story is interesting, it still does not explain why there are no long lines at gas stations. Traders deal with prices, but they cannot manufacture supplies out of thin air. Yet, that seems to be what is being alleged.

Now, if the Bush Administration somehow was storing secret supplies of gasoline to be let out on the market in time for the election, I would like to know where they were keeping those inventories. If someone can point out to me that such secret storage facilities were created and tapped for this moment, then maybe I will be converted to this latest conspiracy theory. For the time being, however, I will continue to be an economist and look at the supply and demand issues.

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6:06 am on October 4, 2006