Here’s news you won’t read on the front pages of newspapers this year.
Unless prices spurt again, profits of major oil and gas companies in 2007 will fall below last year’s record levels.
But stories about the declines will be short and relegated to newspaper business pages, unadorned by quotes from outraged gasoline consumers.
Except for oil company shareholders and managers, nobody cares about oil company profits unless gasoline prices are abnormally high.
But the coincidence of elevated gasoline prices and high oil company profits always provokes a national tantrum in the US. It certainly did so last year, when prices jumped for reasons anyone could see (rebellion in Nigeria, war in Iraq, refineries flooded by hurricanes).
The American public apparently expects oil companies to refrain from earning profits when oil and gas prices jump.
This is not easy. Not profiting when commodity prices leap is more difficult than, for example, producing oil in 5,000 ft of water and making vehicle fuel able to meet ever-toughening air-quality standards.
In the oil and gas business, when prices rise revenues rise if production rates don’t drop. It’s arithmetic. And if costs don’t rise profits rise. Arithmetic again.
It is in fact impossible not to record abnormally high profits when prices leap. It’s just as impossible for abnormally high profits to endure.
High profits attract competition, which increases supply, which lowers prices. At the same time, high prices discourage consumption, which lowers demand and also lowers prices. High profits also invite cost increases, which erode profits even if prices stay high.
All that explains why oil-company profits this year probably won’t match last year’s aberrations. Prices and consumption growth already have eased. Costs are skyrocketing. The diminished profits should delight Americans who were irked so thoroughly last year. But they won’t see stories about them on newspaper front pages.
Americans want to believe that rising gasoline prices reflect a conspiracy against them. They refuse to believe that markets, including physical upsets like Nigerian sabotage and Gulf Coast hurricanes, have anything to do with fuel prices.
Newspapers want to please them. So no one learns anything.
(Online Dec. 31, 2006; author’s e-mail: [email protected])
