The Rise & Fall of Oil Prices in 2008 – An Investigation
Around the times of the last two presidential elections oil prices have fallen sharply from high summer prices. In 2004, I noticed this pointedly (as gas prices were in the neighborhood of $3.40) because the job I had involved 100+ miles of driving daily. I had figured (somewhat cynically) that on some level, the government managed to lower prices to give voters a sense that the nation was doing well. In the summer of 2008, prices were at an all time high following a slow steady climb and once again, around the election the prices dropped dramatically. The context of this drop in price was much different- the US was in the midst of a serious financial crisis. Quite simply, it looked like a market crash correlated with the change in prices at the pump.
However, mainstream media news sources repeatedly reported that the dramatic fall in prices- currently about one half of what they were mid summer- were due to decreases in global demand. It seemed highly implausible that consumer demand- reacting to the mortgage crisis- could suddenly drop enough to justify 50% price decrease at the pump- people around the world still had to commute, trucks had to keep shipping, factories still had goods to produce, households still needed light, heat, and power. Thus my deep interest in this topic began because the implication- contrary to the media- that the change in price did not seem to follow the laws of supply and demand.
The purpose of this paper is to provide a deeper look at the mechanics of oil pricing- for both crude oil and consumer prices in the United States. Changes in oil prices in the US have a profound eff ...