Big Oil should prepare for the lash of market forces

A MOOD of excitement has gripped the oil industry since OPEC, a cartel of producers, resorted last month to its old trick of rigging the market to shore up prices. After two years of crisis, firms at last scent an end to cheap oil. Bankers are again throwing money at North American oil companies to drill in onshore shale beds, pushing junk-bond yields to their lowest levels since 2014. On December 5th and 7th respectively, Mexico and Iran struck potential deals with some of the world’s biggest oil firms to develop vast prospective oilfields.The animal spirits are understandable. During most of the industry’s history, from the days of the Rockefellers, to the post-war dominance of the Seven Sisters, to OPEC since the 1960s, cartel-like behaviour has always ended up underpinning oil prices. This has encouraged a flabby complacency that other industries cannot afford. Oil firms have routinely squandered returns in pursuit of big projects with distant payouts, in the expectation that sooner or later high prices would bail them out. OPEC’s intervention seems to hint at a return to this pampered normality. In fact, to control the oil market is harder than ever. And that means Big Oil must shape up to survive.