On April 1, leaders of the top five U.S. oil companies stood before Congress to answer the following charge: Becoming filthy stinking rich off skyrocketing energy prices while Joe Public bleeds his pension dry in an effort to pay for gasoline.
Here is my translation of the proceedings:
Congress: You killers of Christmas -- put greed aside and bring down the cost of crude. NOW!
Big Oil: If we could we would. But the price of oil is “being driven by factors beyond our control.” (Reuters) “There is no rhyme or reason to the rally.” (AP)
Congress: How very convenient. ------- Big Oil: Maybe. But it’s also true.
As a neutral third party, I’m obliged to say that the facts do check out. Recent data from the Energy Information Agency reveal that U.S. demand for petroleum has fallen steadily since July 2007, alongside a decade-high in gas reserves and historically adequate oil reserves. As for the notion that this is 1970’s revisited, nope. Back then, across-the-board inflation lifted the price of all financial sectors; today, energy -- and commodities -- are the only markets going up amidst a swelling landslide of plunging housing and credit values.
Geopolitical unrest hasn’t budged from its post 9-11 terror state, and the U.S. dollar has depreciated 30% against the world’s currencies since 2002 -- where the price of oil has exploded 500%. Not exactly a fair fight (BusinessWeek).
All things considered, Big Oil has a point: “There is nothing fundamental to sustain oil at these levels.” (Bloomberg) If you refuse to take their word for it, consider the most blaring (unbiased) example of how the so-called “captains” of the crude oil ship are NOT really at the helm. The year 1998 ---
The U.S. is enjoying the rewards of an unprecedented dotcom AND housing boom, the stock market is soaring to unchartered territory, unemployment levels are low, the federal budget is experiencing its first surplus since 1969, global relations are free from war, the U.S. dollar is stronger than ever, and Newsweek has just coined this “happy state” of affairs the “New Economy” -- a phenomenon in which “investment in information technology will eliminate economic fluctuations and usher in a golden age of prosperity.”
In November, the price per barrel of oil equaled the cost of a large, one-topping take-out pizza. (Roughly $11) Yet, despite the fact that every imaginably bearish factor under the sun was working against it, crude hit bottom at $10.35 and rocketed more than 250% to $37.80 in 2000.
What Big Oil does or doesn’t do with its windfall profits may be a question of morality. But it’s not one of manipulating the price of crude oil to work in their favor. They simply remain the unintended beneficiaries of a market that, until the world ends its oil dependency, is the ultimate cash cow.
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