Are Oil Prices Returning To Their Pre-Bush Trajectory?
January 19, 2015

 
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A number of “concern trolls” on the Right and on Wall Street have been desperate to find ways to paint the recent plunge in oil prices as a BAD thing worthy of “serious concern” (remember when they WANTED to bring down the price of oil with their 2008 “Drill here. Drill now!” campaign rhetoric and Newt’s promise of $2.50/gal gas by approving Keystone?) A lot of amateur-economists talked about the “popping of the tech bubble” in 2000 as some sort of devastating aberration. Something “no one saw coming” and could have been sustained if only it had been handled properly. Poppycock. I was there. What happened to the tech boom of the late ’90’s was not a “popping of the tech bubble” but a CORRECTION (prepping for “Y2K” was the biggest contributor, which we knew would be over by 2000.) The tech bubble didn’t devastate the U.S. economy in 2000 the way it was following the Market Crash of 2008. Likewise, this recent drop in oil prices should not be seen as a “crash” but a “correction”. Before George W. Bush became president in 2001… and on til the invasion of Iraq in 2003… the per-barrel price of oil remained pretty much where it had been for the past two decades… below $30/barrel. It took the invasion of Iraq to drive it into the stratosphere. And now that the economy is finally starting to shake off the last vestiges of the Bush years, oil prices should be seen as simply returning to that slow-rise to $30 trajectory it started in the early 80’s.
 

Oil price per balled, 1981-Present

 

The above graph is a chart of the annual price of oil since 1981. That yellow line shows roughly the trajectory upon which oil prices were rising in that time (going back to 1977 prior to the Iran/Hostage Crisis, see teaser-graph at start of post for more detail), bouncing around the mid-$20’s during most of that time. 1990 & 2000 fall right on that line, and if oil prices had continued on this same trajectory unabated by the Bush-II years, the natural price of oil would be closer to $35/barrel today.

As I pointed out recently (and frequently in the past), the price of gasoline was WELL below $2/gal prior to the invasion of Iraq. In 2000, long-haul truckers threatened to go on strike when the price of diesel hit a crushing $1.89/gal, demanding that the White House do something to stop the sudden rise in gas prices. Candidate George Bush declared that if he were elected president, he’d tell OPEC to “open up the spigots” [ibid] to get prices down (gas prices were never lower during the entire Bush presidency than they were that day.) Two weeks before the invasion of Iraq, the price oil was $29/barrel and Dick Cheney suggested that one of the consequences of invading Iraq and “removing Saddam Hussein” might be oil “as low as $15/barrel”.
 

Percentage change in oil prices, 1981 to Present
Percentage change in oil prices, 1981 to Present

 

As you can see from the above graph, this recent plunge in the price of oil is certainly not the first nor the largest. That honor goes to the Reagan Administration, whom I believe Republicans give high marks to. The decline in 1998 was also not the forebearer of economic catastrophe. Only the plunge of 2008… which took place AFTER the economic crash that year… was a sign that something was wrong. And NOT ONCE in any of those cases did the steep decline in the price of oil provoke a severe economic downturn. In fact, the opposite is true. Ronald Reagan’s second term saw economic growth. The plunge of 1998 saw the start of explosive growth in the tech sector that fueled the Clinton Jobs Machine. And now in 2015, the economy is on the rebound, creating more than 200,000 jobs a month for the past three months (with 12 of the last 36 months seeing >200K jobs created.)

Oil companies were incredibly successful for decades with oil prices around $30/barrel, and are hardly “struggling” today because oil prices recently (momentarily) fell to $45/barrel last week. Before the Bush presidency, I remember being upset when gas hit $1.49/gal in the Summer of 2000. Today, locally, I can find gasoline for $1.89/gal, getting very close to that $1.50/gal price I fretted over in 2000, and right on par where I’d expect it to be today if prices had continued to rise at the same rate. The idea that sub-$50 oil would be some sort of economic disaster for the oil companies is nonsense. They became addicted to the outrageous profits of the last decade that made companies like Exxon/Mobil “the most profitable corporation on the face of the Earth”, and now they want to convince you that $3/gal gas should be the norm.

It’s nonsense of course. The current decline in gasoline prices is NOT a harbinger of economic devastation to come. Oil companies did just fine with oil close to $25/barrel for decades, and will do so again if necessary.


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January 19, 2015 · Admin Mugsy · No Comments - Add
Posted in: Economy, myth busting, Seems Obvious to Me, War