Try, if you will, to visualize the world financial markets as a playground seesaw. On a day when the price of a barrel of crude oil falls a couple of bucks, the Dow Jones industrial average rises a couple of hundred dollars.

Up, down. Up, down. It’s almost hypnotic.

And wildly unpredictable. On a real seesaw, one end is always up, the other always down. It’s a law of physics.

But the world’s financial markets don’t seem to be following any of the normal laws. That’s because the old laws no longer apply. New rules apparently have been written, and no one really seems to know what they are.

For example, the aforementioned price of a barrel of oil has dropped like a stone in recent days — but not the price of a gallon of regular, unleaded gasoline at the pump, at least not in proportion to the decrease in crude prices.

Experts assure us the pump price will come down, eventually, unless there are extenuating circumstances. Hurricane Dolly could have been one of those circumstances. So could political unrest in the Middle East. Any event that threatens oil companies also threatens our national, regional, state, local and personal economies.

And while sliding crude oil prices may give consumers hope, it’s not something you’d want to bet the farm on. The same experts that track the price of oil also are just as willing to share their opinions about where oil prices are going in the future. After plunging $16 a barrel last week, oil prices are back on the up escalator.

Advertisement

All of which means U.S. consumers can start looking nervously at the next price plateau for fuel, which likely is $5 a gallon. European motorists must be amused by our angst. They’ve been paying twice that much for quite a while.

Still, a habit is a habit. Americans need their gasoline and diesel fuel, and they want the oil companies to provide a steady flow of the stuff.

We’re in the midst of oil companies reporting quarterly profits, and as is their habit of late, the bottom lines are breathtaking. Consumers are being told by industry officials that those profits are being plowed back into exploration and development of new sources of oil.

Ah, if only that were true.

First, you must keep in mind that oil companies are not public utilities. They are private businesses, whose goal is making of a profit. The major oil companies have certainly been doing that, and then some, reporting record profits last year, with more of the same this year.

While it’s intuitive in this kind of market situation that a company would direct profits back into finding more product to sell, the fact is the major oil companies, first and foremost, are taking care of investors.

The five largest international oil companies returned 55 percent of their profits last year to investors, either in stock buybacks or dividends, according to the James A. Baker III Institute for Public Policy at Rice University, which sits near the heart of Texas oil country.

That’s nearly double the return to investors from just seven years ago. Fifteen years ago, oil companies returned just 1 percent to investors.

That’s relatively good news for investors, among which are many large-scale mutual funds that assist in the retirement plans of millions of Americans — but not so good news for consumers, which includes most of those investors. Most of them, if given the choice, would prefer a lower price at the pump than a few dollars in dividends.

So, if major oil companies would rather curry favor with investors by showering them with cash — which oil companies have four times more of today than in the early 1990s — instead of delivering more of their product, doesn’t it make sense to you that we should find ways to reduce our dependence on oil?

July 24, 2008