Wednesday, September 13, 2000

Oil-Hog Nations Look to Saudis

For the third time this year the OPEC oil cartel has agreed to raise production, but its latest relatively modest increase of 800,000 barrels a day has left the markets unimpressed. Oil now is nudging $35 a barrel, U.S. gasoline prices are headed for record levels and protests over fuel costs and shortages are spreading across Western Europe. Oil costs more than at any other time since the 1990 Gulf War. Worse may be in store. Analysts warn that a severe winter in the Northern Hemisphere could push prices to $40 a barrel. Last March the cartel adopted a grand production control plan that was supposed to maintain market equilibrium by keeping oil between $22 and $28 a barrel. The plan's failure is all too evident.

There's an acute need for a quick boost in oil output. The only producer that can do that is Saudi Arabia, which has the capacity to add the 1 million or so barrels a day that could force prices down. The Saudis know that the long-term interests of the oil producers depend on a stable market and prices that won't trigger a global recession, as happened twice in the 1970s and again 10 years ago. Other cartel members are more interested in putting current profits ahead of future stability. The Saudis, concerned about upsetting OPEC's unity, are reluctant to act unilaterally to raise output. The compelling need for the consuming countries to recommit to energy conservation hardly needs underscoring. In the United States a complacent Congress has done nothing since the mid-1980s to raise automobile fuel economy standards, especially on gas-guzzling sport-utility vehicles. Nor did the Clinton administration and its two immediate predecessors take the lead in urging such action. Any political blame-laying must start with those facts.

The positive news about oil prices is that in real terms they are still about one-third less than in 1990. But no one should doubt that sustained high prices could destroy much of the economic gains of recent years. The developing economies in Asia would be especially vulnerable. OPEC's March experiment in managing the market has failed. In the near term, only a significant boost in supply can bring prices under control

http://www.latimes.com/news/comment/20000913/t000086448.html

-- Martin Thompson (mthom1927@aol.com), September 13, 2000