USA considers its options as oil prices increase
Regional, Economics, 3/27/2000

Senator Fred Thompson, Chairman of the US Senate Governmental Affairs Committee, held a hearing on the rising oil prices where a barrel of oil on world markets has risen from near $10 dollars a barrel to near $30.

Thompson said that the USA should look to long-term solutions to lessen the US dependence on foreign oil after a decade of low oil prices and increasing consumption and decreasing supply.

"There is a danger of not having a proactive oil policy," he said, adding this price shock may prompt Americans to seek a remedy to oil dependence for national security reasons on a long term basis, and that a short term solution should not make the current situation worse than it is.

He spoke about the "miscalculations (consumption projections) by OPEC, oversupply from their standpoint" and the Asian crisis, all reversing themselves have contributed to the current situation.

Senator Joseph Lieberman cited that gasoline inventories have been low and called for having regional oil reserves to avoid the spike in home heating oil prices that hit the northeastern part of the USA due to local supply access problems, where the prices have now returned to normal again.

The USA currently has an emergency Strategic Petroleum Reserve (SPR) that is capable of supplying almost 4 million barrels per day for three months. The USA consumes nearly 15 million barrels of oil daily, with nearly half of that from foreign countries.

Lieberman called for increasing and diversifying energy supplies, including exploring the feasibility of looking into areas currently not available for exploration due to different reasons such as the environment. However, it is estimated that according to the hearing that these oil areas will not add much to the needs of the USA beyond 1 to 2 percent on a long term basis, and that the USA's dependency on oil will remain and will increase. Explorations into ways of decreasing this rate of increase in the rate of dependency include the use of solar energy.

Senator George Voinivich said that he expected that the USA efforts in jawboning OPEC will yield results, adding that this does not deal with the real issue of the USA not having an energy policy.

Voinivich said, "We are too dependent on oil from around the world, from a lot places that are very unstable."

Senator Daniel Akaka called for use of energy conservation as a long term measure.

Senator Pete Domenici called for increasing the use of nuclear energy, calling it insane not to make use of this energy source. The senator questioned whether the USA would have received more sympathy from oil-producing countries in its pleas to have those countries increase production in order to have lower market oil prices if the USA had shown concern for these very same countries when the price of a barrel of oil was $10 (and Mexico and Venezuela could not make it economically on this price). Many of these oil-producing countries are extremely dependent for their income on oil revenues for more than 50% of their national income, a much greater extent than that of the USA where the oil component of the domestic economy has dropped to an all time low of 3 percent.

Because of the extreme dependence of most of the oil-exporting countries on petroleum for income, it is seen that a long term solution may entail having those countries diversify their economy, which in turn removes the pressure on these countries to extract monopoly prices from the customers for oil.

It is worth noting that the USA currently is a producer of oil and sells some of its own Alaska oil supplies to Japan. The USA currently has large oil reserves that it has chosen not to use for different reasons that the US considers either economically unfeasible (high cost of extraction) or because US citizens place a higher value on environmental concern regarding damage to the environment. The US has also large natural gas reserves that it has chosen not to take full advantage of. Also, the Congress has used the petroleum reserve sales to lower the budget deficit it was cited in the hearing.

Many have called on the Gulf countries to increase production because the USA "saved Kuwait and Saudi Arabia" and places its forces to protect these countries. Chairman Fred Thompson said that this argument is not a very credible one, in reference to US and world economic interest in the region. The oil producing countries do appear to some to act as a monopoly (oligopoly), and this issue has raised the concern of US lawmakers about the possibility of taking action against these organizations on this basis. It is not clear how realistic or effective a legal action can be, but some are aiming at legislation to prevent providing aid to those countries. It is worth noting that these countries involved benefit economically more from each additional dollar of higher oil prices then any cost induced by such US measures.

Despite attempts to increase explorations and the countries that are capable of supplying oil (Caspian sea etc.) the USA is likely to continue this pattern of dependence on oil for some time to come.

The USA is trying to begin sharing strategic data and projections about consumption patterns with oil producing countries, in order to provide better price stability to the oil market by enabling them to better match the market forces of supply and demand without having governmental intervention, thus by implication, providing a price point that would be seen as fair by producers and their customers.
The Clinton administration is actively seeking to have oil producing countries increase their output to meet current demand, and with consideration for the lag time between the supply of raw petroleum and finished oil byproducts (gasoline etc..)

OPEC is meeting today to consider an increase in oil production.

Previous Stories:
  A tour by petroleum minister of Venezuela to the Arab area   (3/25/2000)
  Decrease in commercial exchange between Egypt and USA   (3/25/2000)
  Egypt will not export natural gas to Israel   (3/20/2000)

Please add a link on your webiste pointing to ArabicNews.com and bookmark ArabicNews.com & subscribe to our daily email news bulletin.

Search