Seeking scapegoats

Patrick Crow
Washington, D.C.
[email protected]

Some U.S. producers think dismal oil prices are partially the result of market manipulation by foreign producers.

Oklahoma Gov. Frank Keating recently told the National Governors Association foreign producers are dumping crude "considerably under the cost of production...with the avowed purpose of taking 1 million b/d off the U.S. market."

In an appeal to Congress, the Independent Petroleum Association of America said low oil prices have exposed "an issue that has long been unstated-whether foreign producer nations would try to use their production cost advantage to undermine U.S. production capacity."

And Dewey Bartlett Jr., president of Keener Oil & Gas Co., Tulsa, named names at a Senate hearing (OGJ, Feb. 8, 1999, p. 30).

"Several governments have publicly stated that their present strategy is to gain market share at the expense of the higher-cost producers of the U.S. I specifically point to Venezuela, Saudi Arabia, Iraq, and Iran.

"Venezuela has publicly stated that their immediate strategy is to drive the higher-cost producers of the U.S. out of business, discourage deepwater exploration, and hinder the development of alternative energy sources. That is being accomplished today by their ability to manipulate the world price of crude oil."

The proof

Actual evidence of such actions is as thin as an oil sheen.

Independents mostly rely on a Dec. 3, 1997, Oil Daily story that said unnamed Petroleos de Venezuela SA officials believe that increasing their oil output would push prices down and force some high-cost U.S. production to shut in, allowing Pdvsa to gain market share.

That's known to have been a pet theory of former Pdvsa Pres. Luis Giusti, who only last December told the Reuters news service-somewhat hopefully-that "continued low crude oil prices would drive about 1 million b/d of U.S. and Canadian oil production out of the market in the next few months. The producers that are experiencing difficulties are Canada, Louisiana offshore, and stripper wells in the U.S."

But what has Pdvsa actually done to push that strategy? The opposite. Last year, it slashed output 400,000-500,000 b/d in an effort to help shore up the world market-indirectly helping marginal U.S. wells stay on flow.

Many factors

Larry Goldstein, of the Petroleum Industry Research Foundation Inc., said that, even if Pdvsa had once wanted to low-ball its competitors for the U.S. market, "That's not their thinking now."

For one thing, Venezuela's new president has forced Giusti's resignation and reclaimed the government's control of oil policy (OGJ, Dec. 21, 1998, p. 33).

Goldstein knows of no nation deliberately targeting U.S. marginal production.

He said Iraq is criticized for boosting production 1 million b/d with no concern about the selling price, "but Iraq is only a factor in the equation, not the factor." He said there are many other elements, including the Asian economic crisis.

U.S. independents have many good arguments for government support to help them through this crisis. Fear of foreign cabals isn't one of them.