On Monday, amid reports of attacks on Nigerian oil installations and increasing market activity, the cost of oil started inching its way upward to $79.41 per barrel. For students of the past 30 years, this process should seem eerily familiar.
In the early 1970s, the United States received approximately 6 percent of its oil from the Middle East. However, when the Yom Kippur war led to a massive OPEC oil embargo, gas prices quadrupled. The ensuing gas crisis, which crippled the economy and spelled the end of gargantuan cars, has generally been blamed on OPEC's actions. However, the statistics of the day suggest that other forces may have been at work in changing America's gas expenditures. In 1973, oil company profits rose by up to 700 percent; not long after, oil execs gave themselves massive 20 percent raises.
Flash forward 25 years. With another worldwide oil crisis brewing, gas prices in 2008 broke records and Exxon (XOM) reported the largest profits ever collected by a publicly traded company. While car companies went out of business, airlines started tacking on fees, and people started roller skating to work, representatives of the top five oil companies sat before Congress, where they absorbed halfhearted blows hurled by populist-posing Democrats.
A year later, with gas prices low again due to a massive reduction in consumption, it's clear that 2009 is not a great time to be an oil man. While it looks like gas will top out somewhere around $3 per gallon this year, that is hardly the rich bonanza of 2008, when the roads were full of Hummers and gas cost upwards of $4 per gallon. Petroleum reserves are filling up, air travel and leisure driving are down, and it is hard to imagine how gas companies and speculators could possibly drive up the price of crude.
Enter Nigeria. When militants from the Movement for the Emancipation of the Niger Delta (MELD) attacked an oil platform owned by Royal Dutch Shell (RDS.A), they were only following in the footsteps of earlier actions. For the past three years, MELD has been attacking installations and kidnapping workers, driving down Nigeria's oil production to two-thirds of its capacity. Somehow, however, the world has gone on and oil prices haven't been dramatically affected.
For some reason, however, this particular attack was different. Apparently, it caused oil prices to go up 4 percent globally, and 3 percent in the United States. Under the circumstances, the logical conclusion seems to be that oil companies and speculators are taking advantage of a relatively minor event in Nigeria to try to recapture some of the glory of 2008. In the meantime, public transportation is looking better and better ...