NCPA - National Center for Policy Analysis


October 11, 2006

Over the past few months, the price of gasoline has fallen about 75 cents per gallon because of market forces and not, as some liberals have alleged, because of a secret conspiracy to help Republicans in the upcoming mid-term elections, according to several analysts, says H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis (NCPA), argued that the theory is "absurd."

"This is basic economics," said Burnett.  "Markets, when not encumbered by foolish legislation to 'fix' a problem, work."

Burnett attributes the recent price drop to three main factors:

  • Increased supply -- previously high prices are bringing more oil to market, drilling rigs and production are up, refineries are being expanded here and built in other countries for the first time in years, and new technologies are being applied to exploit traditional and non-traditional sources.
  • Decreased demand -- in response to high prices, consumers are conserving, for example, sales of SUVs have fallen and more fuel-efficient cars are driving off the lot.
  • Decreased risk -- tensions in the Middle East have eased as more Iraqi oil is reaching the market, Iran seems unlikely to face sanctions, and Israel has left Lebanon, while the hurricane season has been milder than predicted. Therefore, inventories have remained high.

Ben Lieberman, a senior policy analyst in the Roe Institute for Economic Policy Studies at the conservative Heritage Foundation, agreed with Burnett's reasons for the cost decline and added a few points:

  • Ethanol, which experienced a massive price spike after the law requiring the use of this fuel additive took effect early this year, has finally come down in price.
  • Also, now that summer is over, demand slackens, and the tough seasonal environmental specifications for fuel are no longer in effect.

Source: Randy Hall, "Gas Price Drop Due to Market, Not Conspiracy, Analysts Say,", October 11, 2006.


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