Big Oil Capitalizes on Upbeat Economy

by John M. Curtis
(310) 204-8700

Copyright March 24, 2012
All Rights Reserved.                                         

             Steadily increasing pump prices, the United States oil and gas industry takes advantage of an improving economy. With retail sales increasing 1.1% in February, the oil industry expects more driving and consumer spending, anticipating increases in unit labor costs, hinting the Federal Reserve Board might raise federal funds rate and corresponding prime interest rate.  Conference Board’s Macroeconomics Director Kathy Bostjancic sees economic growth ahead for the United States economy.  “It ‘s a head wind for the consumer, but it doesn’t derail the recovery.  It can be taken in stride, especially if the underlying fundamentals of the economy are improving, which they are,” said Bostjancic.  “The dominant factor is really the improvement of the labor market,” said Bostjancic, believing as long as oil and gas rise the stock market reflects positive economic growth.

             Translated into plain English, Big Oil decided it was time to gouge consumers.  There’s no better time to raise prices when consumers have more cash in their pockets.  When the Labor Department announced March 9 that the unemployment rate dropped to 8.3%, Big Oil went hog-wild raising prices.  There’s real reason why a growing economy should result in higher pump prices..  “And that if it continues, that trumps all the potential headwinds for the consumer,” believing high energy prices won’t derail the expanding economy.  While it’s true momentum works to keep the economy rolling, it’s also true that high fuel prices curtail usual consumer spending. ”I think higher energy prices would probably slow growth, at least in the short run,” Federal Reserve Chairman Ben. S. Bernanke told Congress.  Big Oil has keen instincts when it’s time to gouge consumers and industry.

             Facing a revolt in the polls, President Barack Obama realized he must be more vociferous about today’s run-up in pump prices.  Ordinary voters won’t take too kindly to a president that appears complicit with Big Oil.  So far, Obama has thrown up his hands and pretended there’s nothing he could do to stop Big Oil’s relentless attempt to gouge consumers.  Wall Street gives consumers more excuses for high pump prices than the Ayatollah for raising pump prices.  One day it’s growing demand in China and India.  Another day, it’s refinery shut-downs.  Other times, it’s Obama’s veto of the Keystone XL pipeline.  Recently, Wall Street used Middle East tensions to raise pump prices.  While it’s true that an improving economy increases demand, it’s also true the Big Oil recognizes when consumers have more discretionary income to pay higher pump prices and a bigger share of the monthly budget.

             When Barack’s job approval dipped because of rising pump prices, the president took a more active role.  Urging an end to $4 billion in tax breaks for the oil and gas industry, Obama reversed his position on approving the Keystone XL pipeline, taking crude oil from Oklahoma and delivering it to refineries on the Gulf Coast.  Obama wants to expand domestic output while, at the same time, focusing on alternative energy production.  Expanding alternative energy production or releasing oil from the U.S. Strategic Petroleum Reserve won’t stop Big Oil from gouging consumers.  Expectations of growing demand from an improving economy give Big Oil the license to gouge consumers.  U.S. demand for crude oil is still down from 20 million barrels in 2009 to 18.7 million barrels today, reflecting a sluggish economy but also more conservation from fuel-efficient vehicles and industrial equipment.

             Calling rising pump prices “the most serious immediate threat to consumer confidence and the broader economy,” chief economist Mark Zandi of Moody’s Analytics warned about potential harm to the U.S. economy.  Zandi worries that rising pump prices put a punitive tax on consumers, leaving average people more cash-strapped. ”Even if oil prices stay where they are today, gasoline prices are going to rise to a new record high in late April or early May,” said Zandi, concerned about a drag on the economy.  “That takes a real bite out the household pocketbooks,” concerned about long-term damage to the economy.  Blaming higher pump prices on a growing economy only tells half the story about how Big Oil decides it’s the right time to gouge American consumers and industry.  Putting Big Oil in the spotlight, if nothing else, gives them reason to pause.

             All the talk about how an improving economy contributes to rising pump prices doesn’t tell the whole story.  If Barack would raise public awareness about the arbitrary way Big Oil raises prices, the industry as a whole would be forced to act more responsibly.  Wall Street likes to blow smoke and give more excuses why the industry periodically raises prices.  Washington has a short memory of Summer 2008 when Big Oil raised the price of unleaded regular to an all-time high of $4.11 a gallon.  Big Oil didn’t care that it helped drive the economy into the worst recession since the Great Depression.  “If you want a growing economy, that’s going to put more pressure on prices and so on,” said Bernanke, helping perpetuate the same old myth.  Big Oil pounces on good economic news to raise prices, making excuses about growing demand, when it’s all about profit, earnings and shareholder value.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.       

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