Prices fall, motorists smile . . . but political and economic tensions mount. Until this week, the White House painted lower oil prices as almost universally beneficial to the United States. They dampen inflation, fuel economic growth, and even help the foreign trade and federal budget deficits.
But the Reagan administration is now worried about the damage cheap oil is doing to the domestic oil industry, banks, and to overall US energy security.
The Reagan administration ``is giving a clear signal to oil markets that it doesn't want prices to go down any more,'' says Allen Sinai, chief economist with Shearson Lehman Brothers in New York. ``The negative impact on Texas, Louisiana, Oklahoma, and the oil companies is frightening the Reagan administration politically.''
Vice-President George Bush, who arrives in Saudi Arabia Saturday, says he will express US concern. Mr. Bush (who profited in the oil industry as a businessman in Houston and has his eye on the '88 presidential race) says he is not going to talk about fixing prices but will tell the Saudis that ``stability in the market is a very important thing.''
So is regional political stability, says G. Henry M. Schuler at Georgetown University's Center for Strategic and International Studies. Mr. Schuler says the Saudi production strategy has riled Iran, intensified tensions in Egypt, Sudan, and North Yemen, and could be dangerous internally for the kingdom.
``The Saudis have to worry about how this is being played,'' says Schuler. ``They thought that [production of] 4.3 million barrels per day would solve all their problems, but at current prices they get less revenue now and the strategy doesn't work. The Saudis have to do something else.''
The Bush visit appeared to be helping push up prices on oil markets Wednesday. In early trading in New York, west Texas intermediate crude for May delivery rose to $11.60, continuing a recovery from an eight-year low of $9.75 early Tuesday. Prices were higher in Europe as well.
The oil market is highly prone to influence, says Dr. Sinai, and ``all it takes is the Bush announcement -- this is the event that the market was ready for.''