Plunge refutes US view of what steers oil price

Feb. 2, 2009
If not for the political damage, uninformed bellyaching about oil prices would be amusing.

If not for the political damage, uninformed bellyaching about oil prices would be amusing.

In the US, where it’s shrill, the complaining started after Hurricanes Katrina and Rita whacked Gulf Coast refining and production in 2005.

Oil prices already were rising in a tightening market. They had no way to respond to the supply shock except to jump.

But an altogether transparent and reasonable market response made Americans irrational. When the profits of oil and gas companies subsequently rose, as they inevitably would under the circumstances, anger gave way to consummate rage.

The political consequences remain painfully in memory: the threats of “windfall profit” taxes, the congressional inquisitions of oil company executives, and the nearly total dismissal of the oil and gas industry from pubic acceptability.

While businesses don’t have to be popular to succeed commercially, they do need some measure of credibility if they’re to have political influence, even if that influence amounts to little more than defense against worst cases.

An oil market characterized by growth that couldn’t last and prices unsustainably high quickly has reversed course. To this turn of events, American thinking on the price of oil has no way to respond.

If the oil industry deserved the public hatred it experienced when prices were high, does it now merit love and kisses?

If the elevation of profit by commodity producers in a time of rising commodity prices really amounts to evidence of chicanery, should shrinkage of profit as prices slide not earn for the oil industry cheers from lawmakers and adoration from news commentators?

This, of course, is a facetious game of logic based on a discussion in which, historically, logic has lacked influence. If the past predicts the future, the oil prices that attracted such scorn while high will lose nearly all attention while low.

Before public oblivion takes over, the industry might usefully call attention to another question that more seriously addresses a misunderstanding central to its political difficulties:

If oil companies really possessed the control so frequently ascribed to them, why would they allow oil prices to fall so dramatically now?

Online Jan. 23, 2009; author’s e-mail: [email protected])