In a normal world, prices generally reflect supply/demand drivers - scarce supplies plus high demand equals premium prices. But who said the world of the oil producer is normal?
In fact, there can be a real downside to high prices. In the first place, the general public believes that they are getting the shaft from "Big Oil" and a groundswell of grumbling is heard on the street and in the press, which derives incredible delight in reporting on any grumbling. Big Oil, in what could almost be characterized as a knee-jerk response, quickly pointed out, "But we don't control prices, the market does." The public reaction to this explanation could well be described as the, "Don't confuse me with the facts" rejoinder once attributed to a famous politician.
The problem is that rational thinkers have always been defeated by public perception, because as everyone knows, "Perception is reality." The majority of the public firmly believes that oil companies set prices, so it must be true. There are still individuals out there who think that the common practice of listing gasoline prices in tenths of a unit (so the price always seems lower) is a diabolical trick, forced on them by "Big Oil" (this is the same group who screamed "foul" in the '70s when the ill-fated experiment of pricing fuel in the United States by the liter was floated). The perception was they were being hoodwinked somehow, and, as everyone knows, perception is reality.
I had an interesting debate over prices with a "chap" I met over a beer in one of Scotland's finer pubs. He was bemoaning the price of petrol in the United Kingdom and laying 100% of the blame on "thae greedy bastards" that run the oil companies. "Wait a minute." I said, "If a barrel of oil costs roughly the same all over the world, how come you have to pay twice as much for petrol as we do in America." After thinking for a while, my chap replied, "I dunno, the oil companies must be better at it over here."
Last week the US Congress held one of its famous inquisitions, hauling the presidents of half a dozen oil companies before a panel to explain their "obscene" profits. Again the facts, largely ignored by the solons, showed that none of the companies being pilloried had profit levels any higher than most other industries. Had the distinguished panel bothered to investigate, it would have found more facts: Many oil companies have been using current profits to pay down huge debt accumulated when oil was trading in the bargain basement. Others are investing in technology to help sustain the production and thus help meet the steadily increasing demand.
But no one wants to hear facts. They just want to put on a show to convince the masses that they are "doing something" to solve the energy crisis. Some members of Congress have managed to ignore the fact that the counter-productive Windfall Profits Tax was an economic disaster when it was tried before. Like Einstein's famous asylum inmates, somehow they think that if they try it again, the result will be different.
On the supply side there are more "facts" these politicians would have us believe. Fact: Although the Alaskan North Slope has been under development for decades without a single environmental downside, apparently when the first well is drilled in the ANWR, the pristine wilderness will be polluted and all the caribou will keel over. Fact (this one from the president's brother, the governor of Florida): Although oil exploration and development has been going on in the Gulf of Mexico for 57 years, and the gentle waves pushed by the loop current and the prevailing winds have been washing on Florida's beaches all that time without incident, if one well is spudded in the Eastern Gulf of Mexico, the beaches will be ruined and the tourists will all go home.
Let's face facts. These so-called facts are nothing less than pandering to the public. By perpetuating public perceptions, they can stall enabling legislation and public policy that could solve the energy crisis in the only way the industry knows how, explore, drill and produce as much oil and gas as efficiently and as economically as possible.
If people really want lower prices, open up more areas for drilling, take the myriad red-tape shackles off the permitting process for new wells, liquefied natural gas ports and refineries. Supply will go up, and miracle of miracles, prices will come down.
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