Fuelling Doubts

Coincidence?

8220;This has been huge fodder for talk radio,8221; said Tyson Slocum, director of energy programmes at Public Citizen, who says he has appeared on 15 radio shows focusing if the Bush administration is manipulating prices before the elections. 8220;All markets are susceptible to politics, and oil is no exception.8221;

The roller coaster in oil prices this year without any supply disruption has fueled conspiracy theories about why gasoline prices went up and why they are coming down now. 8220;Paranoia is as American as apple pie,8221; says Chas W. Freeman, former US ambassador to Saudi Arabia. 8220;This is all Michael Moore on steroids.8221;

Here are some of the leading theories, and some possible explanations, for what is happening in the volatile oil markets.

A Favour to Bush?

Many claim the Saudi government is doing Bush a favor by trying to bring down prices before the election. The evidence? Some say the Saudi government has a long-standing relationship with the Bush family. They also cite the 2004 book by Bob Woodward, Plan of Attack, which said that then-Saudi ambassador to the US, Prince Bandar bin Sultan, promised to keep oil production high enough to moderate fuel prices and bolster the US economy during the presidential election year.

Now, with crude oil prices tumbling and OPEC members calling for production cuts, Saudi officials are saying they will wait until the next meeting of OPEC oil ministers, which happens to be scheduled for December.

But oil traders are worried that Saudi Arabia won8217;t wait. A well-placed trader in Europe said the kingdom has quietly trimmed its output to 9.15 million barrels a day, from 9.3 million barrels a day, and that it has been talking about shaving a bit more if other OPEC members also cut back to stop the rapid slide in oil prices.

Most oil experts say Saudi Arabia generally tries to avoid conflict with the US government. And Saudi oil policy opposes sharp upward or downward price changes so that consumers don8217;t switch to non-petroleum fuels.

8220;Saudi production levels are keyed to moderating price increases, that8217;s true,8221; said Freeman, who was in Saudi Arabia during President George H.W. Bush8217;s administration. At that time, Saudi Arabia opened its spigots to dampen prices as the US prepared to free Kuwait.

8220;But they don8217;t really control them anymore,8221; Freeman added. 8220;Saudi oil minister Ali Naimi can8217;t fine-tune prices for the purposes of influencing elections even if he wanted to.8221;

The Goldman Touch

Some claim that Treasury Secretary Henry M. Paulson Jr. has asked his former partners at Goldman Sachs to dump gasoline futures to drive down pump prices and boost GOP prospects in November.

Goldman runs the most important commodity index, which serves as the basis for about 60 billion in investment funds. And the firm has been selling gasoline holdings. 8220;Goldman has been liquidating its gasoline position, and that8217;s put a lot of pressure on prices,8221; said Citigroup Inc. oil analyst Doug Leggate.

Whether the sales are part of a conspiracy is another question. Paulson has said he severed all ties to Goldman when he became Treasury secretary 8212; and there are Democrats at Goldman, too.

In June, Goldman said that because of US government regulations it would replace unleaded gasoline futures, which will be terminated, to futures in reformulated gasoline used in blending with ethanol. But then on August 9, Goldman said it would reduce the gasoline portion of its index, sparking a steep one-day plunge in prices on the New York Mercantile Exchange. Goldman sources said this week that the proportion of gasoline in the index has been reduced by two-thirds.

Tapping the Reserve

Some Americans think the Bush administration is secretly selling stocks from the Strategic Petroleum Reserve, the 687.7 million barrel emergency stockpile stored in Louisiana salt caverns.

Normally, the federal government is slowly building the reserve. But in April, Bush said he would take the unusual step of suspending additions to the reserve in the face of soaring gasoline prices. From May to September, there was no net addition to or subtraction from the reserve.

The Big-Oil Theory

Are the big oil companies lowering prices to help the Republicans? Public Citizen8217;s Slocum argues that an indictment of BP PLC traders for trying to corner the propane market shows that giants can sway prices. He pointed out that 81 per cent of the 63 million in political contributions made by major US oil companies since 2001 have gone to Republicans.

8220;Do I think George Bush is whispering in the ears of the oil companies? No. That8217;s silly,8221; Slocum said. 8220;But some folks in the government sent strong signals to the speculators in the oil market. Was that related to the elections? I don8217;t know.8221;