The U.S. oil and gas producing industry is closer than usual to winning constructive action from Congress. Lawmakers in impressive numbers are paying serious attention to proposals that would preserve, mostly through tax relief, threatened production and incentives, again through tax breaks, for high cost exploration. This is welcome recognition that periods of market weakness hurt an important industry and the people who work in it. Alas, parts of that industry threaten to spoil things by revealing what they really want.
What some producers want, of course, is protection from the market's down side. The response comes naturally to business people during difficult times and certainly is not unique to the oil and gas business. Producers of other important raw materials receive help from the government. Farmers enjoy price supports, for example. Why shouldn't oil and gas producers get help, too?
TWO ANSWERS
It's a good question with two answers. On an ideological level, the proper way to fix an imbalance of market protections is to abolish all protections, not make new ones. On a political level, oil and gas producers should not get help because outside of producing states they and their industry are profoundly disliked. Americans win pay more than they should for bread, corn flakes, and peanut butter to protect farmers from the down sides of markets and weather. They will not overpay for oil products to protect producers from a market slump.
To be sure, this is something to regret. It is a political liability that the industry should try to remedy, as the U.S. Department of Energy, among others, has been urging it to do. The current consideration of tax relief by Congress certainly gives the industry reason to claim some success along these lines.
But the producing industry must never forget the reason for the chronic scorn it receives in national politics: its legacy of market manipulation by oil trusts at the turn of the century. It doesn't matter now that monopolistic practices common to the era favored refiners more than producers. Americans have treated the oil business with suspicion ever since.
Those attitudes, central as they are to the industry's political difficulties can only harden when producers look outside the market for action to raise oil prices. Perennial calls for import fees or floor prices fail into this category. So does Independent Petroleum Association of America's criticism this month of failure by the Organization of Petroleum Exporting Countries to raise crude prices by fabricating shortage.
REASONS FOR PRICE SLUMP
This isn't 1986, when Saudi Arabia, for reasons that made economic sense from the Saudi perspective, wrecked the oil market to reclaim lost market share. This is 1994, when quite a few producers, in and out of OPEC, earn respectable profits from $13/bbl oil and when 3 million b/d of supply from Iraq still looms in the indistinct future. There are reasons for prices to be depressed, and OPEC which has members in political jeopardy because of low prices can't do much about them.
Producers need demand growth, patience, and whatever help governments may be inclined to provide. To its credit, Congress may be inclined to provide tax relief. Producers should support the effort as something that helps the government, too, and take pride of this unusual recognition of their importance. If the government has to listen to much more nonsense about how low oil prices really hurt consumers and the economy, prospects for tax relief will lapse into history, where they unlike long gone oil trusts will be forgotten.
