Bismarck is reported to have said, “there is a providence that protects idiots, drunkards, children and the United States of America.”
Oil is surely no exception. In 1859, Pennsylvania sported the first commercial gusher and for decades, America was the leading oil producer and even an exporter. Urban sprawl and conspicuously large vehicles squandered that abundance and by the early 1970s, the nation’s freedom in foreign policy bent to OPEC.
In 2006, U.S oil production had bottomed at about 6.8 million barrels a day and the nation labored under a $271 billion petroleum trade deficit. During the recession and early years of the recovery, that hemorrhaging taxed GDP by 2.5 percent and 3.5 million jobs.
Providence smiled again. The shale boom made the problem easier. America’s energy policymakers — not nearly all of whom are in Washington — and critics of conservation believe higher oil prices are now good for the economy, America can burn all the gas it likes and America is headed for a new prosperity as a net oil exporter.
The Trump administration deserves significant credit for rationalizing regulation of domestic production. This, despite relentless criticism from Ivy League experts, the liberal media and groupies at Bernie Sanders rallies who hypocritically drive liberal fashion branded SUVS — remember, Land Rover heavies don’t pollute like Ford and GM offerings.
Despite rising oil prices pushing up production in the Permian and Bakken fields, net oil imports are still about 3.3 million barrels a day. Hence, when the price of oil rises, oil producers and workers’ incomes do rise, but everyone else loses even more. And GDP, employment and wages go down.
By my estimate, GDP could be boosted half a percentage point if oil imports were eliminated.
The attendant burden on the American working family appears perilous to increase, because the shale boom has limits, OPEC is successfully pushing up prices and America’s auto producers have forgotten that when gasoline goes up, car buyers gravitate to smaller vehicles.
In the early years of the shale boom, euphoria encouraged bankers and investors to give drillers all the water, sand and pipe they wanted in a quest for market share but then oil and gas prices collapsed — the average pump price for gasoline fell to nearly $2 a gallon in 2016.
The Saudis with help from Vladimir Putin and political entropy in Venezuela have driven up oil and pump prices again — and Saudi Crown Prince Mohammed bin Salman has set a target of at least $80 per barrel.
U.S. production is responding but not nearly to the point that critics of conservation predict, because the money folks now demand that oil companies actually make a profit — an inconvenience for advocates of reckless burn and bicycling alike.
If OPEC is dead as its American detractors allege, the crown prince has a corpse dancing the supernatural — that has pushed gas prices to nearly $3 a gallon.
In Detroit, Ford’s new CEO Jim Hackett — who engineered the ouster of Mark Fields for the sin of record profits — behaves as if he can see the future — cheap oil.
Someone’s wrong — either the crown prince of Saudi Arabia or the duke of Detroit — but I am not arrogant enough to predict who.
Mr. Hackett has decided Ford will phase out virtually all sedans in favor of more gas guzzling SUVs and pickups — Chrysler has already done the same and GM is soon to follow. Toyota, Hyundai and other foreign automakers will have the market all to themselves. Despite what you may have read about flexible manufacturing, rolling out new sedans would take years once those are gone from Detroit’s lineup.
There must be something special about running Steelcase (the office furniture folks) and the University of Michigan athletic program that anointed Mr. Hackett with special clairvoyance.
Like the stock market and who will win the Super Bowl in 2021, I only know idiots, drunkards and children who would bet their fortune on the price oil three years from now.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.