Politics and gasoline
Gasoline prices are subsiding in the U.S. Tempers are cooling. Before pricing issues return to popular oblivion, the petroleum industry should identify lessons in this latest uproar over its market.
One lesson is discouraging. Arguments based on market analyses can't keep a gasoline price spurt from becoming a political issue.
Many gasoline consumers were not convinced by market explanations for recent price behavior. Yet one of the reasons that prices surged was something they could feel. Last winter was colder and longer than usual. It does not ask too much of the mass intellect to relate frigid air with petroleum prices.
The Iraqi factor
Inventories and expectations about Iraqi oil took a little more explaining. But the difficult part about explaining market phenomena is drawing attention to the subject, which wasn't a problem in this case. The first economic relief in 5 years for an internationally isolated regime was to take the form of exported oil.
It strains no one's communicative skills to explain that refiners had to anticipate the new supply and cut inventories to keep from losing money when prices sagged. And it was only logical that with demand exceeding expectations, with inventories low in anticipation of Iraqi oil, and with the new supply delayed by Iraqi foot-dragging, prices rose.
In fact, the industry had its admirable moments on the public education front. It provided plenty of information about what was happening. And companies handled detractors well. A case study in gadfly management occurred on public television's News Hour with Jim Lehrer Apr. 30. Chevron Products Co. Pres. David O'Reilly held at bay practiced industry critic Ed Rothschild, Citizen Action energy policy director-which isn't easy-and still managed to report clearly what was happening in the oil market.
Yet effective performances like that couldn't head off investigations by the Departments of Energy and Justice. As Sen. Daniel Patrick Moynihan (D-N.Y.) explained, that's what happens when gasoline prices rise. But why? Why should a price increase inherent in obvious market changes become a political issue? Why must the government waste time and money on useless investigations? Why are officials so uniquely tempted by oil price increases to worsen matters with inappropriate regulation?
That the public doesn't understand the oil market is not a sufficient answer. It may be true that consumers neither comprehend oil's new nature as an internationally traded commodity nor appreciate the benefits they derive from it. But the reason price swings turn into political problems for the industry runs deeper than public misunderstanding. People in politically significant numbers don't trust the companies from which they buy oil products.
This, of course, is old news. And "educating the public" won't change things. Oil companies must build and hold the trust of its customers, which requires more than education.
Consumer advocate
The companies that sell oil must become active advocates in the political arena for the people who buy oil. That means consumer interests must set the industry's political agenda. It means, for example, that the industry should resist fuel tax hikes for the simple reason that they're bad for consumers. It means industry support for oil and gas leasing of federal land should be based partly on the supply security it would afford consumers. It means that when complex issues such as gasoline reformulation arise, consumer interests receive as much attention as technical, operational, and environmental concerns.
Ultimately, the business of the oil business is selling oil. As the latest price controversy shows, selling oil still generates high suspicion in the U.S. Until the industry does something about that, until it becomes a consumer advocate for its customers, politics will remain the oil market's biggest unmanageable risk.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.