Gas prices: Don't say we didn't tell you it was going to happen

"...for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about."

American Energy Policy, Asleep at the Spigot

By NELSON D. SCHWARTZ
New York Times, July 6, 2008

JUST three years ago, with oil trading at a seemingly frothy $66 a barrel, David J. O’Reilly made what many experts considered a risky bet. Outmaneuvering Chinese bidders and ignoring critics who said he overpaid, Mr. O’Reilly, the chief executive of Chevron, forked over $18 billion to buy Unocal, a giant whose riches date back to oil fields made famous in the film “There Will Be Blood.”

For Chevron, the deal proved to be a movie-worthy gusher, helping its profits to soar. And while he has warned about tightening energy supplies for years and looks prescient for buying Unocal, even Mr. O’Reilly says that he still can’t get his head around current oil prices, which closed above $145 a barrel on Thursday, a record.

“We can see how you can get to $100,” he says. “At $140, I just don’t know how to explain it. We’re surprised.”

For the rest of the country, the feeling is more like shock. As gasoline prices climb beyond $4 a gallon, Americans are rethinking what they drive and how and where they live. Entire industries are reeling — airlines and automakers most prominent among them — and gas prices have emerged as an important issue in the presidential campaign.

Ninety percent of Americans, meanwhile, expect the pain at the pump to pose a financial hardship in the next six months, according to a recent Associated Press-Yahoo News poll. Stocks now trade inversely to crude prices, and the Dow Jones industrials are in bear-market territory. Old icons have been written off, with Starbucks boasting nearly twice the market value of General Motors, which some on Wall Street say faces the possibility of bankruptcy.

Outside the thriving oil patch, it makes for a bleak economic picture. But it didn’t have to be this way.

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