Oil Prices: Which Way Is Up?

The NYT has a very good piece on the Minerals Management Service and the culture at the agency that led to a disregard of safety and environmental concerns. However, it gets an important point dead wrong at the very beginning. It begins by discussing a lease auction held in March of 1997 and tells readers that this was a period of rising oil prices.

That's not what the data show. Oil prices had been weak throughout the 90s and were headed down in March of 1997. At that point, in inflation-adjusted dollars, oil prices were near their lowest level of the post-war period. This can be seen as a secondary issue in terms of the article's main focus, but it is important to recognize that the world was not suffering from anything resembling an oil shortage at the time that that the government began this renewed push to open the Gulf to drilling.

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written by izzatzo, August 08, 2010 9:54

From the NYT article, this quote:

One day in a staff meeting Mr. Eve raised a question: with wells being sunk at ever-greater depths, what are the chances of a blowout, a catastrophic eruption?

Mr. Oynes said the answer would come from the head of field operations. “And later on the answer came back that it was impossible,” Mr. Eve said. “They said the blowout preventer will take care of it.” (That head of field operations, Donald C. Howard, was fired in 2007 for accepting gifts from a drilling company, and pleaded guilty to lying on his ethics form.)

Mr. Oynes expressed a similarly confident view in a 2003 interview with Tyler Priest, an oral historian at the University of Houston. Referring to a giant spill in Santa Barbara, Calif., in 1969, Mr. Oynes said, “You could almost say it is impossible for that to happen again.” Given modern cleanup technology, he added, “Even if you had a spill, how much harm is it going to do?”

Mr. Eve calls the comment “absurd.”

This parallels the complacent attitude of mainstream economists on the volatility of the economy during the Great Moderation from the mid-'80s to mid-'00s, claiming that business cycles and corresponding downsides of recession had been tamed for good, like serious oil spills.

Systemic risks of entire systems and networks have started to dominate more common individual random risks, mimicking even the risk of terrorism, in terms of high-risk, low-incidence events, except that the incidence is picking up speed across separate systems and networks.

In regard to the low oil prices in '97, Baker's point seems to be the usual one, that as global price takers, high prices need not drive incentives to drill in the Gulf and indeed, lower prices provide even more motivation to reduce costs more by incurring higher environmental risk.

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written by Nick B in DC, August 09, 2010 10:36

Who does the fact checking over there?!? I just googled march '97 global oil prices, and voila! nice graph from '97 through '03:

http://www.wtrg.com/oil_graphs/crudeoilprice9703.gif

Took about 15 seconds to find it.

Maybe they accidentally read an '07 graph, prices were certainly rising then.

Fraud to attract attention
written by floccina, August 09, 2010 1:52

it gets an important point dead wrong at the very beginning.

The above is a little bit of fraud used to attract attention. Always remember what the journalist sells and you will be alright.

Oil Prices: Which Way Is Up?

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