With everyone in the U.S. suddenly wondering how gasoline prices will react to the latest flare-up in Iraq, oil companies should advertise what prices recently did not do.
Did anyone notice?
The U.S. had a holiday. It was Labor Day (when Americans celebrate the exchange of energy for money). It was the last fling of summer, the last long weekend until Thanksgiving (when Americans celebrate their ancestors' urges to travel). It was the occasion for one more long drive of the driving season.
And gasoline prices, according to OGJ's weekly survey, were sagging toward their levels of the preceding year.
Markets fickle
What happened? Did oil companies forget that in the week or so before a holiday they are popularly expected to fleece consumers for a nickel or so a gallon?
Well, no. If the market could have borne a price hike, prices indeed would have climbed. If extra value had been within reach, refiners surely would have claimed it on wholesale transactions, or service-station operators would have done so at retail. That's life in a market.
But markets are fickle. Driving season or no, demand for gasoline has hardly been spectacular. There's plenty of product from refineries, and imports are at hand to supplement domestic supply. With restart of Iraqi exports until last week thought to be imminent, crude prices looked set for a tumble.
It was not a time for anyone to try to fulfill tabloid-mentality expectations about gouging consumers. Indeed, there is never a time to gouge consumers for anyone who wants to stay in business.
Last week, of course, the market changed when resumption of hostilities in Iraq, whatever their extent, delayed indefinitely an anticipated crude oil supply jump of about 700,000 b/d. The market will have to adjust, probably with the help of an increase in the price of crude oil. Gasoline prices may indeed rise.
But it's the pre-Labor Day lull that needs attention here. The contrast with circumstances last spring is just too enchanting to ignore.
Surely, no one has forgotten last spring. Winter had been particularly cold and lasted longer than usual. Heating oil and crude prices were high, inventories low. Gasoline prices spurted, and the U.S. threw a tantrum. Television commentators griped. Lawmakers held hearings. Federal agencies conducted investigations. Oil company gadflies zoomed into celebrity.
There were proposals for changes to the gasoline tax, although no consensus emerged as to which direction would be appropriate. Mandatory conservation measures received attention. So did alternative fuels.
Then, inevitably, gasoline prices subsided. They didn't even blip for the July 4 holiday (when Americans celebrate a rebellion inspired partly by capricious taxation). Once more, the people of the land took to the streets-in minivans and pickup trucks. Supplies recovered. Soon gasoline prices were drifting back toward levels characteristic of the preceding 3 years-when, adjusted for inflation, they set consecutive record lows. By Labor Day, the springtime clamor over motor fuel prices seemed like a distant memory.
Lingering intolerance
Whatever the next few weeks hold for the oil markets, the industry shouldn't let this contrast in national mood pass unnoticed. It reveals lingering intolerance for market performance at one extreme of the price spectrum-even when the established price norm in this era of market freedom is historically low. The wrong side of the boundary between indifference and outrage holds the potential to revive self-destructive impulses peculiar to energy policy-making in the U.S.-all of them involving restraints to a market now providing lavish service to the U.S. economy and consumers of motor fuel.
The boundary in this contrast is a dime wide. It's the difference between $1.20 and $1.30 for a gallon of gasoline.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
