Fool Me Once

“Fool me once. Shame on you. Fool me twice. Shame on me.”

Back in 1973, gas sold for 35 cents per gallon. Big Oil was making plenty of money but wanted to make more. Along came the Yom Kippur War. In a mere couple of weeks, Israel, using American munitions, wiped out Egypt, Syria, and Jordan. In a fit of pique, the Arab States placed an embargo on oil to the West. Instantly, gas prices rose to $1.50 per gallon. Cries of “If gas stays above $1 per gallon, I’ll stop driving!” arose.

Big Oil responded, “The energy market is world-wide and extremely complicated. You couldn’t possibly understand it. These prices are the best we can do.”

People did not stop driving. In fact, we got used to $1.50, then $2.50, then $3.50 gas. The Oil Embargo was long ended, but gas prices never came back down. Big Oil’s profits soared.

Fast forward to 2022. Vlad Putin invaded Ukraine. That “extremely complicated. You couldn’t possibly understand it” world-wide energy market immediately raised the price of a barrel of crude oil from $80 to $150. Prices at American gas pumps nearly doubled to more than $5 per gallon overnight. “If gas stays over $5 per gallon, I’ll stop driving!”

People did not stop driving. Crude oil prices stabilized at about $100 per barrel, but the price at the pump dropped only to about $4.50. Guess what? People got used to it. We will be paying at least $4.50 per gallon forever. Or at least until the next war involving an oil-producing state. Then gas prices will probably double again to $10 per gallon.

Big Oil will make out regardless. Exxon, Chevron, and Shell reported record quarterly earnings of $18 billion (with a b), $12 billion, and $12 billion last week. They made that much money in three months!

What do you do with more than $10 billion burning a hole in your corporate pocket? Economics 101 wants you to re-invest in your business, hire more workers, produce more product, and make even more money.

“Hold on,” claimed Big Oil. “If we produce more, the price will go down and we will make less money. Let’s do what Shell did. Let’s “buy back” $6 billion of our stock on the open market. Our stock price will rise. Our investors will be ecstatic. Our executives will be over the moon as their stock options become more valuable.”

Big Oil “fooled us once” in 1973. It sure looks like they “fooled us twice” in 2022. Shame on us.

By Ed Dufton