As the title of this week's special report (p. 76) indicates, a new dynamic for oil prices may very well be emerging.
But an old dynamic for the oil industry is being resurrected in the process, as it enters the cross-hairs of an angry public.
Or is it? Answering that question depends on duration and on the relative impact of higher oil prices on economies.
Regarding the former, a Gallup poll conducted May 23-24 found that Americans are apparently becoming resigned to high gasoline prices persisting awhile. A poll in March found 63% view the rise in gasoline prices as only a fleeting phenomenon vs. 34% deeming it more permanent. The more-recent poll found that 45% see high prices as temporary vs. 50% as permanent, but only 40% say high gasoline prices will rein their driving this summer.
Translation: "I'll drive my Megamotors Subdivision SUV to Disneyland and back this year because I promised the kids, but if regular is $2/gal all next year, I might start to think about trading down to their smaller, Motozilla model."
Change in attitude?
Where is the usual hyperventilating rage, the apoplectic furor over the sight of gasoline prices 50% higher than their "norm?"
Sure, there was heat (or at least hot air) from US Northeast congresspersons when heating oil spiked earlier this year, but that's pretty much died down.
Less than half of Americans-most seen driving gas-guzzlers these days-now say that $1.50/gal gasoline will cut into their driving plans just a bit this year?
Is it possible that Americans are getting more sophisticated about the laws of supply and demand and recognizing the role that balancing markets plays in the price of a commodity?
Could it be that Americans have philosophically resigned themselves to the view that having an ample supply of cheap gasoline forever as a birthright (quite possibly enshrined in the constitution) is now an outdated concept?
Have Americans thus shed their provincialism, recognizing their good fortune in being able to routinely secure ample supplies of gasoline at a price well below $2/gal while their friends in Europe pay more than twice that amount?
Nah.
Timing, relative effect
It's all in the timing, and having an oil price spike come amid the continuing economic expansion is certainly more fortuitous than has usually been the case with the industry.
It also helps that the economic ripple effects of higher oil prices don't seem to be as pronounced as they were in the past, when oil accounted for a much bigger share of the economy.
And, as Cambridge Energy Research Associates Chairman Daniel Yergin reminded a congressional hearing late last month, gasoline prices in the US, even at $1.50/gal or more, are still a bargain. Yergin notes that current gasoline prices, adjusted for inflation, remain below those of the 1950s, 1960s, and 1970s (the peak was an inflation-adjusted $2.50/gal in 1980).
A CERA study found that Americans are driving 34% more miles and buying less fuel-efficient vehicles vs. 20 years ago. And Yergin doesn't think the current high prices will persist, citing the temporary phenomena of high oil prices, low gasoline stocks, environmental pressures, and strong driving season demand.
But what if crude oil prices do stay high? Would the day of reckoning be at hand? As the industry saw in the '70s, hell hath no fury like a US motorist burned (at the pump, that is).
Taxi Meter Syndrome redux
There is a solution that revives a concept introduced previously in this space: Taxi Meter Syndrome (OGJ, Oct. 15, 1990, p 19). To wit: Gasoline is the only commodity essential to almost every American, the price of which changes daily and is emblazoned in 2-ft-high letters on every street corner. And filling a tank forces the consumer to watch, like the inevitable progression of a taxi meter, the dollars and cents add up, inexorably bleeding wallets and purses and ballooning credit card balances and rising in lockstep with blood pressure.
Know why no one gets upset over high grocery prices today? Bar codes. No items are priced individually any more. Shelf pricing is always in disarray. And who reads the 3-ft-long receipt?
Solution: Tear down all the price signs at service stations (it's not like anyone is making a profit on retail gasoline these days, anyway-it's just a loss leader for Slurpees and cigarettes). Offer discounted smart cards, like the phone companies, purchasable in preset increments for a range of typical fill-ups. It's too difficult to calculate price per gallon from a dashboard fuel gauge, so only really big price swings over short periods will penetrate the consciousness of the average consumer.
Maybe the average US consumer will never love oil companies, but at least then we wouldn't have to listen to all that Washington wheeze about rounding up the usual suspects for investigation of oil company price-gouging.
You might just get away with an extra nickel on that Slurpee, too.
