Tim Lloyd Wright sent me an email asking how I thought the oil industry should manage public outrage about high oil prices. He used my response in an October 2004 article in Hydrocarbon Processing. Entitled “Keeping the Barricades Away from Your Refinery Gate ,” the published article is also available on this website. Here is my complete response.
I suspect the most important thing for the oil companies to do about the rising price is to acknowledge three things: (a) The price increases are devastating to many people and businesses; (b) The price increases are hugely profitable to the oil industry; and (c) Given the first two, it is close to inevitable that people are angry at the oil industry and disposed to believe the industry is engaged in a price hike conspiracy.
Let me add immediately that the research on these sorts of self-inflicted wounds is extremely clear. When talking to an audience that is apathetic, uninvolved, and uninformed – that isn’t aware of the three points listed above and isn’t likely to become aware of them unless the industry itself points them out – pointing them out is a mistake. This is of course the usual state of affairs; most audiences most of the time are apathetic, uninvolved, and uninformed, so it’s usually unwise to tell them bad things about yourself. But on those occasions when the audience is attentive, involved, and informed, acknowledging the unappetizing truths they already know or will soon discover does you much more good than harm. That sort of candor builds credibility and reduces outrage.
Most importantly, that sort of candor is the only way the industry can successfully rebut the misimpression captured in the third point. Whenever an audience believes X with some fervor, communicators who want to rebut X can’t just say Y-Y-Y-Y-Y. They need to say something like this instead: “Many people believe X. It makes sense that they do, because of the following reasons.… I used to believe X; even my mother believes X [or whatever]; it’s natural to believe X. Surprisingly, it turns out that X isn’t actually so. The hard-to-believe truth is Y. It’s especially hard to believe coming from me, since I have an obvious stake in selling Y. But here’s the evidence….”
The equivalent in the case at hand:
Every time the price of oil goes up, people naturally tend to suppose the oil industry made it happen. That’s almost inevitable; we’re a big, powerful industry and we certainly benefit from price increases. While others are suffering, we’re piling up record profits, so it just feels right to guess that we made it happen. The last time oil prices soared, we saw huge public demonstrations at refineries throughout Europe. Of course when oil prices went back down again, people didn’t see that as a conspiracy; that was just luck (bad luck for us, good luck for our customers), the crazy oil market doing its thing….
The truth is, we have a lot less control over oil prices than people think we have – and, frankly, a lot less than we wish we had. There are laws forbidding us from manipulating the price of oil, and for the most part they work. In fact, an oil company that decided today to REDUCE the price it charged its affiliated refineries or its customers would be in serious legal trouble for anti-competitive practices. We’re no more allowed to conspire to lower the price than to raise it.
The truth is embarrassing enough: Our industry is making huge windfall profits on a price surge we didn’t cause, didn’t even predict, and don’t really understand. We don’t know any more than our customers know about what will happen next, whether the price is going to stay high, climb higher, fall slowly, or collapse. The answer seems to depend on everything from the war in Iraq to the corruption controversy in Russia to the vagaries of the Royal Family in Saudi Arabia. The single most important factor, we think, is the predictions of customers. When companies that use a lot of oil guess that the price is probably going up, they do things (like buying oil futures) that tend to make it go up; when they think it’s headed downward, they do things (like postponing purchases) that tend to make it go down. Like you, we mostly go along for the ride.
None of this is meant to deny the obvious truth that what’s profitable for us is harmful for our customers, and what costs us money saves our customers money. Our stakes are different, opposed even. That’s why we’re not allowed to control the price in the first place. So envy us, if you wish; and mistrust us. But please don’t hold us responsible.
Obviously the foregoing is longer than the eight-second TV news sound bite oil industry spokespeople must usually settle for – though a newspaper op-ed this candid would itself generate a lot of news coverage. And please note that I’m making up the facts to illustrate the approach; I’m not an expert on oil pricing. But I hope the main point is clear: To have credibility rebutting people’s misimpressions about oil industry responsibility, the industry must acknowledge that those misimpressions are appealing to people who are suffering the downside of the price hikes while the industry reaps the benefits.
Copyright © 2004 by Peter M. Sandman