Did President Bush burst the oil bubble?
Couple of things, though: first, the price peaked on July 11, 2008. Since then, it's come down precipitiously. Certainly the weakening demand and worries about the economy have contributed to the downward movement once it got started. But it wasn't the case that everyone wanted oil until July 11 and then stopped wanting it the next day. What triggered the reversal?
Well, maybe it was this: Bush lifts executive ban on oil drilling. There are a couple of choice bits from that piece. First, the price of oil in that article (dateline: Monday, July 14, 2008) is $145. Second, there's a quote in there that states, "Experts say offshore oil drilling would not have an immediate impact on oil prices because oil exploration takes years.
'If we were to drill today, realistically speaking, we should not expect a barrel of oil coming out of this new resource for three years, maybe even five years, so let's not kid ourselves," said Fadel Gheit, oil and gas analyst with Oppenheimer & Co. Equity Capital Markets Division.'"
Once again, it seems this is prognistication by people who think economics is all about numbers. They think you take the equation, change a couple of variables, and do the math to get the new numbers. That's why President-elect Obama thinks that raising taxes on the rich will generate X dollars that he can give away to his voters. But economics is really all about people. Numbers measure their actions, but they aren't a substitute for the actions themselves. This is a basic lesson we have to learn time and time again.
Seems to me that the people who were bidding up the oil price in the expectation that supply would remain low suddenly had a new element to factor in: that the US would produce more oil. Once the pressure reversed, all those indicators that had hitherto been ignored because more relevant, and the price has kept going down, down, down. Makes no sense mathematically, but the math is only useful as a model for psychology, and the psychology makes lots of sense. (Who wants to be the last bull in a bear market?)
It also may have helped lose the election for McCain, though. His selection of Gov. Palin was designed to exploit energy concerns stemming from high gas prices. However, while she was campaigning, the price of oil (and therefore gasoline) kept falling and falling, and the issue fell off the political radar. I wonder if the mortgage bailout would have had the resonance and attention if gas had still been $4 a gallon and climbing. That was the real October Surprise: that banking and not energy would be the hot-button economic issue of the final month of campaigning.