The subject of oil casts a strange spell on some politicians. It distorts their perceptions.
Although members of the Organization of Petroleum Exporting Countries are producing crude oil at near-capacity rates to supply a steadily expanding market, Democratic lawmakers see mischief.
On July 8, Sen. Frank R. Lautenberg (D-NJ) introduced a bill calling for World Trade Organization action against OPEC's quotas (OGJ Online, July 14, 2004). Rep. Peter DeFazio (D-Ore.) was to introduce a similar bill in the House.
Calling OPEC an "illegal cartel," Lautenberg declared, "While OPEC and their oil company allies have seen a boon, American families are paying a high price at the pump."
Well, yes, crude oil prices have been high by historic standards lately. And, yes, high prices of crude lift revenues of producers of crude and raise prices to consumers of oil products.
OPEC's quotas, however, are as usual following rather than leading the market.
The group on July 15 confirmed that it would raise its quota for the 10 members other than Iraq to 26 million b/d on Aug. 1 from 25.5 million b/d.
The announcement, however welcome, amounted only to assurance for a market that had little reason to expect anything different.
OPEC-10 production already exceeds the August quota. Average June output was 27.1 million b/d, according to the Energy Information Administration. That's just 1 million b/d less than EIA's estimate of the output OPEC-10 members can bring on stream quickly and sustain for 90 days.
The market thus has limited and shrinking ability to compensate for an emergency supply loss with production. Its only alternatives are commercial inventories, which remain low relative to consumption, and strategic stocks, which represent the last resort of oil supply.
The implication of the Democratic lawmakers' trade bluster is that OPEC, with oil-company encouragement, is restraining production to elevate price.
Production data tell a very different—and very troubling—story.
Given strains on the oil market and the demonstrated ability of Congress to err on energy, the misperception underlying the WTO threat is dangerous.
Given the ready availability of market information, it's also inexcusable.
(Online July 16, 2004; author's e-mail: [email protected])
