Jay Reding.com

What Comes Up…

Power Line has an interesting bit about the possibility of an oil price crash in the coming months. The price of oil has fallen on the world markets, and the price of refined gasoline has also crashed. I was shocked to see gas at less than $2.20/gal here at the Southern Command — and there are some predicting that the price of gasoline could fall below $2/gallon.

Economically, that isn’t surprising. A year of gas shocks will have some effect on consumption, even given the relatively inelastic nature of gasoline usage. The spike in gasoline prices was do more to transitory world events than any real shortage of oil — new discoveries off the Gulf Coast have boosted US crude oil stock estimates by a significant margin. The hurricane season was a dud, which didn’t create any disruptions in supply.

Politically, this is some good news for the GOP. The latest Rasmussen poll of Presidential approval has Bush back up to 47% — and there’s a clear trend line in the numbers that correlates quite nicely with the fall in gas prices. The cost of gas is the most visible economic indicator there is for the average person, and if gas prices fall, that’s generally seen as being healthy for the economy.

I’ve always speculated that oil was in a bubble and we’d see a price crash before prices returned to an equilibrium level. Indeed, that does appear to be happening. That’s good news for the GOP’s political fortunes, but more important it’s also good news for the American consumer after a year of increasingly high prices at the pump.

One response to “What Comes Up…”

  1. Mark says:

    “Politically, this is some good news for the GOP.”

    That you’re probably right about. How good of news is not necessarily clear, but $20 per week more in the average American’s pocket with be helpful in turning the “right track/wrong track” trendline to the incumbent’s favor. Still, there are other minefields for the GOP to wade through, most notably a little quagmire Bush started in the Middle East. The GOP is not out of the woods yet, but their prospects look better now than they did a month ago.

    “The latest Rasmussen poll of Presidential approval has Bush back up to 47% ”

    Strikes me as an outlier, although it’s clear that his numbers are on the uptick. They’ll probably get even better (than his average rating in the 40% range) the closer we get to the election where GOP partisans and conservative-leaning independents who’ve had their differences with him in the past year unite behind their man to engage in political combat with their real enemy, the Dems. Even Clinton’s numbers improved leading up to the disastrous 1994 midterms when Democrats furious at him over NAFTA got a close look at the “Newt Deal” alternative….and today’s GOP is far more united than the Dems in 1994.

    “I’ve always speculated that oil was in a bubble and we’d see a price crash before prices returned to an equilibrium level.”

    It’s a bubble. There simply isn’t enough oil supply to meet the demand coming out of the blistering growth zones of China and India where 5,000 new automobiles are introduced to the roads every day. In another six months, gas prices will likely return to where they were last month at this time…if not higher.