Energy politics warps analysis of oil markets

Bob Tippee
Editor

Deception in service to energy politics is standard practice in the US Congress.

In the latest abomination, six senators from the Joint Economic Committee twisted facts in order to scold President Bush for not coaxing more oil out of the Organization of Petroleum Exporting Countries.

The senators—Democrats Charles E. Schumer of New York, Byron Dorgan of North Dakota, Bob Casey of Pennsylvania, Mary Landrieu of Louisiana, and Amy Klobuchar of Minnesota plus Independent Bernie Sanders of Vermont—threatened in a letter to Bush to block arms sales to OPEC members that don't "significantly increase daily production of crude oil."

A table in an accompanying press release showed annual average production declined last year for Saudi Arabia, Kuwait, and the UAE.

"We are writing to urge you to demand that OPEC members increase their oil production because they are currently producing well under their capacity," the senators said.

News flash: It already happened.

Last year's crude production by OPEC members began in the middle of a slump that started in mid-2006 when the group became worried about rising global inventories; indeed, important members were limiting supply.

But that practice ended before yearend.

"Key producers since November appear to have loosened the taps once again, allowing stock cover to rise," wrote International Energy Agency in its April Oil Market Report.

Contrary to the senators' assertion, unused OPEC production capacity, excluding politically shaky Indonesia, Iraq, Nigeria, and Venezuela, remains low: 2.3 million b/d.

Saudi Arabia, which controls most of that cushion, might let output rise by a further 300,000 b/d. But then total spare capacity would fall back to 2 million b/d, low enough to keep the market skittish at least until new capacity comes on stream later this year.

Once again, lawmakers have communicated a scrambled view of the oil market. The senators deceptively used annual averages to accuse exporters of withholding supply when monthly averages show they're in fact raising output.

And congressional pressure on foreign governments for more oil looks unpersuasive or worse in the context of longstanding US refusal to sanction oil and gas work on most federal land.

(Online Apr. 25, 2008; author's e-mail: bobt@ogjonline.com)

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