The Oil Drum

When I try to explain to people about what is going on in the oil patch (potential peak, potential export problems, gas is really cheap, etc), the response is always that I'm wrong and it's just Big Oil gouging us. It really seems to gear up this time of year as the gas price goes up. How would you recommend responding to these people? Or is it pointless?

It is almost pointless, but I try anyway. If people think that high oil prices are all about Big Oil gouging them, they are never going to understand the problem we face. They will point fingers at Big Oil until they realize that there’s more to it than meets the eye.

So, the question I always ask someone who says something like this are: 1). What is gouging? Please define. 2). How much money should a company be allowed to make? 3). Should it depend on the size of the company? 4). Do you think a major oil company has a higher risk profile than a major software company? 5). Did you know that they oil company earns on average under a dime per dollar of sales, while the software company earns almost $0.30 per dollar of sales? 6). Did you know that oil company profits would plunge if we all drove 10% less?

Those are the kinds of questions I use to frame the discussion. Ask them if they believe demand increases in the summer. Then, ask what they think would happen if prices did not go up as demand increased. There is a limit to how much we can crank up production. This can help them understand a little bit about the supply and demand pictures, and then you can explain that other things affect supply and demand, and it isn’t just a summer issue. Next, you may be ready to hit them with oil depletion and ask them what they think is going to happen when supply starts going down while demand is still rising.

But they have to get past “It’s all an oil company conspiracy” and start understanding the effects of supply and demand.