Yesterday's New York Times had a front page article "President Fails to Budge OPEC on Production." In its inimical manner, the Times reported OPEC's rebuff to the president's pleas to OPEC to increase production in the straight-faced uncritical manner, visiting on us with what could have been an OPEC flack handout. You see it isn't OPEC's fault, it's the dollar, it's the speculators, it's the troubles along the Venezuelan/Columbian border, mismanagement of the U.S. economy and quoting that weighty disinterested observer of oil patch machinations, none other than Rex W. Tillerson, chairman and CEO of Exxon Mobil, who calmed us down by assuring us that the "The market continues to be well supplied. There has been no interruption in supplies." Well, feel better now? Especially those having the good fortune to be pumping gas at the Americo gas station in the town of Gorda along coastal California where you can get uninterrupted supplies of gasoline at $5.19 a gallon regular and $5.39 for premium.
The New York Times article informs us that we, and our dollar are primarily to blame for the current vertiginous oil prices. Why, in the past year alone "the dollar has lost 17 percent of its value against the euro." No mention, of course, that in January of 2007 the price of oil touched $50 a barrel, thus making the increase in price since some 110%, a long way from the 17% being trumpeted by the New York Times and OPEC flacks. By the way, if you are doing your sums, a 17% increase compensating the fall of the dollar's value on the January 2007 price would bring prices to $58 a barrel, not the $104/bbl we have today.
And then of course the Times goes on to applaud the Saudis for steadily producing 9.2 million barrels a day "day in and day out" to keep the market "well supplied." No investigative journalism here to determine what the Saudis could produce at full tilt. Most likely well in excess of 10 million barrels a day, and given what indeed we know about a modest estimation of their reserves (more than 260 billion barrels and probably closer to 700 billion barrels- see comments by N.G.Saleri head of resevoir management at state owned Saudi Aramco "Oil Inovations Pump New Life Into Old Wells" NYTimes,Mouawad 03.05.07) they could continue doing so for well over a hundred years.
As for the patent nonsense that the "mismanagement of the American economy" is to blame for high oil priceas suggested by Chakib Khelil , Algeria's oil minister and OPEC's president, is a bit like saying our customer has experienced a train wreck so let's charge him all the market can bear. It makes no sense at all.
As to the speculators, yes ,they play a role, but no mention of who is speculating and why. But to allow the comments by Saudi oil minister al Naimi that "Today there is no link between oil (market) fundamentals and prices" as reported by Morocco's Ashraq al-Awast, boggles the mind. More on this in a future post.
But wait, wait. We have also made our contribution to this clown's "mise en scene." As star player on our team is none other than our President Bush. His starring role has been fashioned by the following lines recited earlier this week and quoted by Reuters "Bush urges OPEC to weigh pain of high oil prices" 03.05.08: "My advice to OPEC -- of course they haven't listened to it -- my advice to OPEC is understand the consequences of high energy prices, because I do," Bush told reporters. Wha??
This from a President who --
- Who has seen the price of oil quadruple under his watch while doing virtually nothing to counter this vast increase.
- Has done virtually nothing to abate demand for fossil fuels during his presidency including the mandating of truly meaningful mileage standards for cars.
- Pushed Iraq to rejoin OPEC as practically the first order of business after the removal of Saddam Hussein.
- Never in a meaningful way caused OPEC to moderate their aggressive pricing policies.
- As the price of oil was slipping below $50 barrel, came to the oil industry and OPEC's rescue by announcing a policy of doubling the Strategic Petroleum Reserve (STP) in January 2007.
- Continuing to fill the STP irrespective of price causing the likes of Frank Verrastro of the Center of Strategic and International Studies to exclaim this past week that if the White House was truly interested in lowering oil prices it would stop sending crude oil into the STP. "If you're begging people to put oil on the market why in the world are you taking it off?" Verrastro said, while probably scratching his head.
- Appointing as Secretary of Energy a likeable but untested personage as Sam Bodman whose naiveté on how things work caused his Energy Department to respond to criticism about continuing filling the SPR even in the face of President Bush's comments by saying "reserve shipments are miniscule." Thus they betrayed a total lack of understanding of how markets function, exacerbated with Bodman's simplistic comment "Look, the price of oil is set in the trading rooms in New York and London and Tokyo and Frankfurt and all around the world". Bodman continued, "Whatever it is, it is." No comprehension whatsoever that the United State by word and deed as the largest consumer of oil by far in the world, had the means to influence the mind set and temper of those "trading rooms." That, as we have learned most every day, prices are influenced by strikes in Nigeria, border incursions in Iraq from Turkey, storms in the Gulf of Mexico and fog along the Houston Ship Channel, skirmishes in the Persian Gulf, Middle East political disequilibrium, the list is almost endless. Yet here is our Department of Energy, as usual, asleep at the switch.
If President Bush means when he says he understands the consequences of high energy prices is that his friends in the oil industry are doing fabulously well and the oil companies are raking it in and that OPEC is setting up Sovereign Wealth Funds to buy America, well then, he hit the nail right on the head. As for the rest us, I think we understood a long time ago what he really means, by what he claims to understand when it comes to oil prices.