Gasoline Prices and Elections

CORRECTION: If two observations are removed from the non-Presidential election years sample the difference between the seasonal pattern in election years and non-election years essentially disappears. This implies that the perceived market manipulation probably did not occur.

Why do gasoline prices display a different seasonal pattern in presidential election years?

Most people know that gas prices have a seasonal pattern of rising in the spring and falling in the winter. I’ve even heard radio and TV reporters discussing it. They usually discuss it in terms of the driving season and the summer surge in gas demand. But it is not just demand, seasonal variations in supply also play a role in the seasonal swings in gas prices. Physics, chemistry and economics interact to determine how a refiner divides a barrel of oil between the various products like gas, heating oil, diesel, etc.. They don’t normally try to get only one product out of a barrel of crude oil even though they will refine more heating oil out of a barrel of Venezuelan heavy crude oil and more gas out of a barrel of west Texas intermediate. Refineries are built to work within certain parameters. For example, a given refiner may be able to produce 50% gas and 50% heating oil in winter and 70% gas and 30% heating oil in the summer. This means that in the winter when they focus on heating oil and gasoline demand is low they still produce more gas and the price of gas falls. So it is changes in both supply and demand that cause the seasonal swings in heating oil.

As the following chart, shows the normal pattern is for gas prices to bottom in the winter, rebound in the spring and peak in the fall. The fall peak is driven largely by refiners starting to prepare for the winter heating season by reducing gasoline output and expanding heating oil production before gasoline demand contracts.

But interestingly, since the oil market was deregulated, gasoline prices have shown a different seasonal pattern in presidential election years. 

In presidential election years the fall peak in gasoline prices shifts back to the spring and in the months running up to the election, gasoline prices are essentially unchanged.

In the last seven presidential election years gasoline prices peaked in May three times, in June three times and in July once. So the question is why in non-presidential election years do gas prices peak just before November, but in election years they peak months earlier and are flat running up to the election?

If you did not know better you might think someone had a vested interest in making sure the public was not concerned about gas prices at election time so that energy policy would not be an election issue. But who would have that concern and the ability to manipulate prices? What would it take to keep prices stable in the pre-election period? Probably all it would take is for a few firms to delay or dampen the fall refinery switch over from more gasoline to more heating oil output – something hardly anyone would notice. One firm controls about 20% of US refinery capacity, three firms control 40% and four firms control half of US refining capacity. It would not take much of a conspiracy for a few oil executives to keep gas prices flat before Presidential elections.

Ok, this is just a crazy theory and I’ve never really been a believer in conspiracy theories.

But who has a better explanation for the unusual seasonal pattern of gas prices in election years? In earlier years it could have been crude. But in the last three elections gas prices peaked in the spring even though crude prices continued to rise. This year it looks like crude prices will cause gasoline prices to be falling in the run up to the election. 

So we are really left with the question of why were gasoline prices flat in the face of rising crude prices in the last three Presidential election years?