Memories, memories...
- The National Association of Attorneys General, alarmed by "surging gasoline prices and the reemergence of energy crisis-related scams," urges the federal government to study "the entire petroleum industry, including the way spot market and commodity futures trading affect pricing."
- The U.S. Justice Department begins an inquiry into whether oil companies have conspired to raise oil prices.
- William O'Neill, then governor of Connecticut, signs an emergency measure prohibiting "unconscionably excessive" prices for fuel during disruptions caused by natural disasters, oil spills, or conflicts.
- Sen. Bob Packwood (R-Ore.) calls for a modified "windfall profits" tax on oil.
- Eight senators and 27 House members file bills to allow the president to block "unreasonable" price increases.
These were just a few of the ways powerful people in the U.S. reacted to increases in the price of gasoline following Iraq's invasion of Kuwait on Aug. 2, 1990. Today, with crude oil prices depressed and pretax gasoline prices at historic lows after inflation adjustments, it seems like distant history.
A REVIEW
A review, then: The crisis snatched 4.5 million b/d of oil from the market, which adjusted quickly. Concerned about replacement supply, oil merchants raised bids. The higher prices revived idle production and stimulated capacity expansions. Consumption fell. And within weeks, the market had returned to reasonable balance at a diminished level of total demand.
The disruption - sudden disappearance of 7% of the oil in international trade - could have been much worse. Indeed, it would have been worse if Packwood had won his windfall profit tax, if the president had received and used authority to block "unreasonable" price increases, or if - as was suggested - the federal government had reinstituted allocation controls. Does everyone remember allocation controls? During the Arab oil embargo of 1973-74, they produced those blocks-long waiting lines outside service stations. Memories, memories...
Fortunately for everyone, the market worked quickly in 1990-91, with prices free to summon forth new supply and discourage demand. But the hecklers never gave up. "In the days immediately after the invasion," complained Sen. Richard Bryan (D-Nev.) in a performance typical of the day, "the big oil companies lost no time in running up prices. There was no shortage of oil to justify such a rapid rise in the price of gasoline." Will they never learn?
PRICES DOWN
Last year, prices for unleaded gasoline through October averaged $1.11/gal, according to the Energy Information Administration. That's down a penny from the year before and nearly 2/gal from 1992, not accounting for inflation. Less federal tax increases and average state levies passed since 1990, the 1993 gasoline price drops to 99/gal, its lowest level since 1988. Since last October, prices have fallen further in most areas. And the declines have come while environmental regulations are pushing refining costs up.
Where are those champions of the consumer now? Where were they when Congress raised gasoline taxes by 5/gal in 1990 and by 4.3/gal last year and many states were following suit? What, if anything, did the Justice Department and state attorneys general learn from their blustery inquiries that they couldn't have learned simply by watching the market perform during the crisis and ever since?
Memories, memories... So much they might teach; so little are they heeded.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
