Big Oil

This post got me thinking: do people think that the oil industry is in some way fundamentally different from other industries? You hear a lot about “Big Oil” but not so much about “Big Shoes” or “Big Hamburgers” or “Big Dairy”. Why the attention and enmity toward companies in the petroleum industry?

Here’s a theory: with oil, the time from exploration to production of gasoline is exceedingly long, often decades. Short term supply can change some by changing pumping rates, but major structural change occurs very slowly. Demand, on the other hand, can and does change quickly.

While a few other industries have a similar profile (jetliners, for example), few others are so directly tied to consumers. I’ll never buy a Boeing Dreamliner, but I buy gasoline all the time. The supply and demand behavior for gasoline is very different from the supply and demand behavior of most things I purchase. Unless you’ve really thought about it, and understand some economics, gasoline pricing seems arbitrary and maybe even corrupt. It’s that suspicion of corruption that causes the enmity for “Big Oil”.

Of course, gasoline isn’t totally unique. A few other products have long term suply and short term demand issues. The one I can think of is prescription drugs. And you know how everyone feels about “Big Pharma”.

Advertisements

One response to this post.

  1. I also think its the presence of OPEC and their “price setting” that gets people thinking of oil in monopoly terms and/or corruption terms.

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: