Oil: The Return of Hype—and High Prices

The oil companies are looking to raise prices again. And gullible media are letting them get away with it

By Ed Wallace

When Jon Stewart took CNBC's Jim Cramer to task in March over numerous bad calls on the state of the economy and certain unfortunate stock picks, that wasn't the first time I had heard Cramer's type of apology and answer. No, that came in an NPR interview with Kai Ryssdal of Marketplace. The radio host was asked how the business media had gotten so many things wrong about what has happened to America's financial system and why the best on the beat had missed so many obvious warning signs. Ryssdal replied: "We've got to do a better job connecting the dots."

What does that mean, exactly? It was never a question of connecting dots; it was always a question of finding out which business stories were true and which were not.

In contrast, the response to that same question by BusinessWeek Economics Editor Peter Coy, also on NPR, was clearly much more factual. Coy stated that many media outlets, including BusinessWeek, did carry the accurate stories on these troubling financial issues and did so early—but by and large the mainstream business media didn't pick up the ball and run with it.

Instead, it appeared they bought into the hype.

What is troubling in today's uncertain business climate is how many in the media are still doing it. You need not look far for proof: The price of oil and gas and the potential for future pricing are as badly hyped today as they were over the past four years.

Still No Gas Shortage

Doubt that? Let's start off with a few facts. Since January of this year, we have gone from 325,419,000 barrels of oil in our inventories to 366,743,000 barrels. We've now set a record for the most oil in inventories since late 1990. The same holds true for Europe, and recently it was announced that China has finished filling its reserve inventory system—although China did import slightly more oil this March than last.

Most have already forgotten the extreme contango ("contango" is an oil industry term used to describe when spot oil prices are less than the contracted price on the date of delivery) in the oil market that started off 2009. That situation forced oil traders to lease large numbers of supertankers to store oil offshore, hoping that the spot price for crude would rise so they could recoup losses on their contracted prices. Last week our refineries ran at barely over 80% of capacity, yet today we have 1 million more barrels of gasoline on hand than we did at this time last year (216,505,000 vs. 215,751,000). There are now discussions about shutting down refineries for good because gasoline demand has been falling for the last 18 months.

So as my columns last year stated, once again there is no gasoline shortage. Yet the Energy Information Administration claims that gasoline prices will go up to $2.23 this summer. Why? There's nothing to justify that position based on supply and demand. As analyst Steven Schork said, "You can't swing a cat without hitting a barrel of oil in the U.S."

The media still maintain that OPEC's production cuts are legitimately raising the price of oil. Yet OPEC has again slashed its projections for oil demand for 2009, now totaling a drop of 1.4 million barrels per day, called a "devastating contraction." Meanwhile, the International Energy Agency slashed estimates for oil demand down to 83.4 million barrels per day.

Stretch your memory a bit more: When Asia had its financial crisis in 1997, it dropped the price of oil to around $10 a barrel at the bottom. But today the financial crisis is bigger and worldwide, and yet oil has gone from $33 a barrel in mid-February to at one point more than $53.

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