U.S. may face OPEC backlash

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U.S. may face OPEC backlash Bid to boost oil output stirs some resentment

03/25/2000

By Dianne Solis / The Dallas Morning News

VIENNA, Austria - The Organization of Petroleum Exporting Countries is basking in its old glory here in this elegant capital of baroque palaces on the Danube River.

Little more than a year ago, OPEC was written off as irrelevant, a has-been group among the thriving economies of the free-market world, where cartels no longer had a role. Oil prices were languishing in the low teens, and the financially strapped OPEC governments took the drastic step of scaling back production - so much so that oil prices topped $34 a barrel earlier this month.

Now, back in the United States, motorists are seething. Republicans crafted legislation threatening to pull military aid from OPEC nations as punishment. And White House economists fretted that sustained lofty prices for oil would fan inflation.

That set off two rounds of petroleum diplomacy by globe-trotting U.S. Energy Secretary Bill Richardson. But as oil ministers meet behind the scenes here before the start of their semiannual meeting Monday, there's some evidence that Mr. Richardson's efforts to coax production increases from the major oil exporters are sparking ill will against the United States.

Preliminary indications are that the OPEC members may indeed agree to boost production - but not by as much as the United States had hoped. Some leaders are under pressure in their countries not to cave in to what some see as U.S. coercion to raise production levels by 2 million barrels per day.

"I think Richardson's diplomacy hurts, or it does as much bad as it does good," says Raad Alkadiri, a consultant with Washington, D.C.-based Petroleum Finance Co. who's in Vienna to watch the drama unfold.

Most recently, the U.S. energy secretary has traveled to Britain, France and Norway to meet with energy ministers from major producing countries. Earlier, he visited Saudi Arabia, Kuwait and Mexico - all with an eye toward coaxing substantial production increases out of OPEC and other major exporters of crude oil .

A spokeswoman for Mr. Richardson said Friday that the secretary did not think his visits with major oil-producing countries had been counterproductive.

"His meetings with top energy officials in the OPEC nations and non-OPEC nations have gone very well," the spokeswoman said. "They've been productive. The proof of that is that 40 days ago no increase was being mentioned, and now they are talking about increasing production."

The United States would like the oil producers involved in the OPEC pacts to increase production by 2 million barrels a day to about 26 million barrels. The world consumes about 75 million barrels of oil a day.

Such a production level would bring prices back into the range of $20 to $25 a barrel, said Jay Hakes, chief of the U.S. Energy Information Agency within Mr. Richardson's Energy Department. U.S. petroleum stocks are "alarmingly low," he said.

Hawks and doves

Using a military metaphor, Mr. Alkadiri sees the 11 nations of OPEC falling into two camps: oil price doves, such as Saudi Arabia, and oil price hawks, such as Algeria, Libya and Iraq.

"Doves, like Saudi Arabia, will be seen as merely responding to U.S. approval rather than calming the market on their own," Mr. Alkadiri said.

Mr. Richardson's task of cajoling the OPEC nations is a delicate one, said Peyton Feltus, a Dallas-based oil trader who has attended past OPEC meetings as a consultant to a member nation.

"The relationship between the West and the Muslim world has been strained for a long time," Mr. Feltus said. "And anything but very quiet diplomacy would probably backfire."

As if on cue, Iraq came out with a scathing editorial in a government newspaper Thursday. America's point of view isn't the only one to be considered, the editorial said.

"It's high time OPEC regain its oil prestige, power and dominance," the editorial read. Iraq is the 11th OPEC member, but has been excluded from oil production pacts because of U.N. sanctions against it.

House weighs in

But Muslim nations aren't the only ones who are miffed. Causing more sparks was a rat-a-tat-tat of criticism coming from Capitol Hill. On Wednesday, the House debated legislation to cut off aid and arms sales to OPEC nations that fix oil prices. A Venezuelan aide to oil minister Ali Rodriguez cited the legislation as an irritant in relations, as he left a meeting at OPEC's headquarters here Friday.

And Mexico has let it be known that it thinks the United States is getting too pushy. Though not an OPEC member, the oil-rich nation played a decisive role last March in patching together the production cutback agreements that attempted to stabilize prices.

Though it entered into a free-trade pact with the United States in 1994, Mexico doesn't permit foreign investment in its oil industry and is, in fact, one of the few nations in the world with such restrictions.

Mexican Energy Minister Luis Tellez is on the defensive over a February meeting with Mr. Richardson, and he has denied that he's under pressure from the United States to pump up oil production. A razor-witted newspaper editorial cartoon portrayed Dr. Tellez as "the second ambassador of the United States."

U.S. Treasury Secretary Lawrence Summers, in Dallas on Tuesday to discuss trade issues, appears concerned that the United States' diplomatic efforts could become too public and, therefore, ineffective. "You can accomplish more if you don't need the credit for doing it," he said.

Apparently, even Mr. Richardson believes the pressure, or at least the perception of it, is too high. He told several U.S. representatives to stay home after they let him know they planned to attend this Monday's OPEC meeting in Vienna.

Among them was Rep. Joe Barton, an Ennis Republican whose office confirmed the trip was scuttled.

"Some OPEC governments believe we are already pressuring them too much," read a letter from Mr. Richardson to Mr. Barton.

Edgy markets

Oil markets are expecting OPEC producers and their ally Mexico to raise production levels. But the key question is how much more they will unleash on the market. And a few nations are even balking at kicking up any new production on April 1, after the existing production output pact expires. The price hawks, analysts say, want production increases to begin in the summer because of a seasonal slack in demand during the second quarter.

As reporters ritualistically stake out Vienna hotel lobbies for ambush interviews with oil ministers and their aides, the news trickle caused petroleum markets Friday to get edgy. The U.S. benchmark, West Texas Intermediate, closed up 71 cents a barrel to $28.02 on the New York Mercantile Exchange.

In the meantime, OPEC ministers are basking in their renewed, bittersweet glory - reminiscent of the 1970s when the struggle between oil-producing and oil-consuming nations was a decade-long drama. And it comes complete with the old carping about ceding to arm-twisting by the United States.

"OPEC is on the threshold of regaining the price destiny of their major commodity and it's impressive," says Mr. Feltus. "To pass this one last test to decide production and do it in unison will probably mean we are in a new era as far as OPEC is concerned."

http://dallasnews.com/business/54488_OPEC25.html

-- Martin Thompson (mthom1927@aol.com), March 25, 2000

Answers

Saudi Arabia is cited as being an oil price "dove". If Saudi Arabia's technological ability to produce oil is intact, it alone can drive the price of oil back into the teens (dollars per barrel). Saudi Arabia did exactly that in 1986. No, they won't repeat this, but Saudi Arabia has effective "veto" power (and effectively, total control) over any O.P.E.C. production decisions. The point is, if Saudi Arabia's "dovish" position does not prevail, it is evidence that O.P.E.C.'s technological capabilities are NOT intact. Oil production and refining are the main casualties of the "Y2K Computer Bug". The Y2K Bug induced Energy Crisis will hit "critical mass" when the world wakes up one day, and realizes that any "promised" extra oil isn't coming --- because O.P.E.C. can NOT increase production. At this point, why would the Arab counties be interested in perpetuating the West's pesky computer bug "cover-up", especially in the face of harsh blame from the West, for "gouging" by "artificially" restraining production? Their calendar isn't even the same, so why would they not "spill the beans", now that the "Heat is On" them? If the Y2K Computer Bug really is the problem, then the only alternative, is to perpetuate and unnecessarily aggravate high international tensions, (on BOTH sides --- either can spill the beans), just to keep the Y2K Bug cover-up going. This would be as much a "human stupidity" error as the subject Bug itself was, if not worse. And it could conceivably cascade into a TEOTWAWKI War!

-- Robert Riggs (rxr.999@worldnet.att.net), March 26, 2000.

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