Gas prices in the US

Gas prices in the US

The notion that the state of the economy will decide the victor in this year’s US general election appears largely uncontested. While national security was the focus in 2004’s election (unsurprisingly, in the wake of 9/11), which saw the incumbent George Bush demolish John Kerry in the polls, November 2012 is shaping up as a contest over who can better manage the economy. Or rather, who can lift it out of the doldrums. And until the last few months, things were looking somewhat ominous for President Obama. The faltering economy, continuing trouble in Afghanistan, and a Republican-controlled House of Representatives have certainly made life tough for his re-election campaign. But for many Americans, the pain to their hip pockets at the gas pump is one of their primary concerns, and so the spike in gas prices over the past few months have seen many despair.

Over the past few months, there have been some indicators suggesting that the economy is experiencing a tentative recovery. And importantly, gas prices may have finally peaked. After a steep run up to nearly US$4 a gallon (about AUD$1.05 a litre here... wouldn’t we be thrilled with that!), the gas price has declined over the past week or two, enough to give consumers some cause for optimism. The price of crude oil, which accounts for approximately 70% of the cost of gas, has come off a little, but not enough to explain the fall in gas. So what else is contributing to falling prices at the pump? The answer, it appears, may just lie in Iran.

It was only a month or so ago that tensions were running high, with Iran seemingly flying in the face of the international community’s call for it to abandon its pursuit of nuclear power. Iran responded by threatening to close the Strait of Hormuz, which sees one fifth of the world’s oil pass through it. Israeli Prime Minister Benjamin Netanyahu paid a visit to the White House, where he and President Obama engaged in crisis talks. There were even calls for a pre-emptive strike against Iranian nuclear facilities being entertained.

But Iran’s decision to come back to the negotiating table on its nuclear ambitions has seen concerns of a disruption to oil supplies ease. International talks are set to reconvene in May, and the world’s supply of crude oil looks safe for now. And in addition to easing tensions with Iran, it appears that Saudi Arabia has offered assurances to make up for any loss of Iranian oil on account of tightening sanctions. Furthermore, better domestic fuel efficiency has seen an easing of demand, and so we might just see gas prices continue to decline.

Naturally, any number of disasters could transpire to send the oil price higher once again, or at least threaten its supply. But with some relief at the pumps in the US, and on the proviso that we see that continue, the outlook for President Obama winning a second term may be a little brighter. 

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