Tuesday, May 20, 2008

Dude, where’s my gas?

Sabria S. Jawhar

PRESIDENT Bush has again left Saudi Arabia empty-handed. Apparently he hasn’t learned from his previous trip that giving more oil to the United States is not the solution to deal with high gasoline prices there.
Bush’s first trip to meet with Saudi officials, which culminated into the first rejection, was embarrassing enough. But for an American president to come back yet again with hat in hand only emphasizes Bush’s weakness as a leader. His mission to persuade the Saudis to increase oil production was futile, and he knew it even before he boarded Air Force One.
The price of a barrel of crude oil is flirting with $128. The reasons for the soaring oil price are so complex that if you ask a hundred oil and economic experts worldwide about them, you probably will get just as many different answers.But experts do agree on one thing: Oil supplies are not the problem, and global demand is not so high as to force prices up.
David Kelly, chief market strategist at J.P. Morgan Funds, told the Washington Post earlier this month that the “growth in the world oil consumption is not that strong.”
If I had to hazard a guess, I’d say that Bush traveled all the way to Saudi Arabia on the false and simplistic assumption that dropping oil production quotas, or at least increasing production, would solve his problems.Business Week reported that US oil stockpiles had reached 33 million barrels since January 1, while the demand for gasoline had dropped by almost six percent.
US oil refineries are not even running at full capacity. In fact, they have dropped their utilization from 89 percent to 85 percent this year. Yet, the US continues to stockpile anywhere from 800,000 to 1.4 million barrels of gasoline, which demonstrates the decline in consumption.This is why there aren’t any long queues at US gas stations like they did in the 1970s.
The myth that China is responsible for a surge in demand is simply media speculation. The Energy Information Agency reports that “China’s oil consumption is expected to rise by 400,000 barrels per day (bpd) in 2008, with Chinese oil imports in March showing an increase of 800,000 bpd from year-earlier levels.
So, China’s oil consumption is projected to remain relatively unchanged, which hardly translates into a surge of demand.Just before Bush’s trip to see Custodian of the Two Holy Mosques King Abdullah Bin Abdul Aziz, Ali Al-Naimi, the Kingdom’s Minister of Petroleum and Mineral Resources, announced that oil production will be raised by 300,000 bpd, with most of the extra supplies going to the US.
But the Saudi government rejected Bush’s new pleas, noting that there is no demand to justify the increase, and that production increases will not bring gasoline prices down.Needless to say, Bush’s visit to Saudi Arabia was pointless. In effect, his visit wrongly sends a signal to the American public that Saudi Arabia alone is responsible for the high oil prices and denying oil to the US.
He apparently is forgetting that there are 12 other members in OPEC, all of whom have a say in setting prices and production.Instead of pointing fingers at Saudi Arabia – or other OPEC members, for that matter – perhaps the US ought to examine its own role in driving prices up.
The $10-a-barrel paradise of the late 1990s simply vaporized into double-digit high hell when the US invaded Afghanistan and Iraq. Perhaps a single-front war in Afghanistan might have kept oil prices stable, but the US took its eyes off the ball and began its folly in Iraq. From that point on, oil prices began to spiral out of control.
Prices soared as the wars dragged on, pushing the US deeper and deeper into debt, and weakening the value of the US dollar in the process. The weak dollar, to which crude prices are pegged, is largely responsible for the high prices.
Along with a weakening dollar, consider a US Senate staff report published in June 2006, which stated that “there is substantial evidence that the large amount of speculation in the current market has significantly increased (oil) prices.”Unregulated commodities trading in energy futures has sparked a US congressional investigation.
A congressional report found that high oil prices were a result of billions of dollars in oil and natural gas contracts being placed at the Intercontinental Exchange, also known as ICE, which is not under the supervision of the Commodities Futures Trading Commission.
So if the US government is hot on dropping the price of a barrel of crude oil and wants to give American motorists relief at the gas pump, it should look into its own backyard before accusing OPEC of holding Americans hostage by refusing to increase production.

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