The world's oilmen gave us a little lecture when they met in Houston the other day. They corrected a couple of our mistaken impressions.
For openers, they explained, we really need to stop getting nauseous as we watch the numbers on the gas pump spin. We've got it wrong, they said, the price of gasoline isn't all that high. In fact, it's a bargain. At a national average of $2.34 a gallon, chided Exxon Mobil's senior vice president Stuart McGill, gas is a positive steal. Compare it to the price of bottled water, which can cost as much as $10 a gallon and won't even make your car go. There -- feel better?
I don't. Consider this: If you don't want pricey bottled water, there's a much cheaper alternative flowing out of your kitchen faucet. If you want gasoline, you have to deal with the oilmen -- period, end of story. Gasoline could be a lot cheaper, too, but the oil industry knows that higher prices make for higher profits. (Proving the point, McGill's company just raked in $36 billion in profit for a single year, more than any other company has ever made.)
Oil used to be like tap water, flowing freely in a market where producers competed for customers, and the world price was less than $10 a barrel. Then the OPEC cartel persuaded its rival producers, and its customers in the industry, as well, to manipulate the market to keep prices high. OPEC has created the illusion that the world is rapidly running out of oil, even as its member nations refuse to allow anyone to verify their improbable statistics on oil reserves. They claim to be pumping as fast as they can, but their real maximum capacity is also a state secret. That lets them feed just enough oil into the market to keep the world running and the price of oil high and rising.
The truth is that there hasn't been any actual shortage of oil since OPEC boycotted the market back in 1973, but the carefully nurtured threat of a shortage keeps customers nervous and serves as an excuse for prices that can only be called outrageous. Every passing storm in the Gulf of Mexico sends the price skittering up, and somehow it never falls back quite as far as it rose.
All the conspirators were there at the Houston energy conference, from Saudi oil minister Ali Al-Naimi and Fu Chengyu, chairman of China's CNOOK Ltd., to American executives like McGill, who happily connive at the fiction of scarce oil. Al-Naimi looked amused when someone asked him whether Saudi Arabia might raise its daily production of 12.5 million barrels any time soon. Oh, he said, I thought you didn't want any more of our oil. Didn't President Bush call it an addiction?
Addiction to Middle East oil is another fallacy, the oilmen assured us, as wrongheaded as the thought of getting off the stuff. The notion of American self-sufficiency in energy is ridiculous, they all agreed -- "simply not feasible" in any "relevant" time period, said McGill. Daniel Yergin, one of the industry's big insiders, said the idea was "at odds with reality."
Any attempt to wean ourselves from Middle East oil would be both dangerous and provocative to our faithful allies, they warned. "In today's global economy, there is no denying our interdependence," said Al-Naimi. "We no longer have the option to go it alone or to let the other guy solve the problem." Thanks. We needed that.
There's still one more tiny nagging point. U.S. consumption of bottled water is running at 6.8 billion gallons a year, which sounds like a lot. But we use 335.7 billion gallons of gasoline a year, which is a humongous lot. Each of us drinks about 25 gallons of bottled water a year, which even at McGill's $10 price will set you back just $250. But since most of us drink a lot more than 25 gallons a year, an awful lot of water is still coming from the faucet. Your car consumes roughly 700 gallons of gasoline a year. Wouldn't it be nice if someone made OPEC open the tap?