Oil Prices Kept Low To the Displeasure Of US Oil Producers
THE plunge in oil prices to a five-year low is a welcome stocking-stuffer for United States energy consumers and the economy. US oil producers, however, are blaming the Clinton administration and the Organization of Petroleum Exporting Countries (OPEC) for stealing their Christmas.
OPEC, which is dominated by Saudi Arabia and Kuwait, chose last month not to cut production, even though the world market is oversupplied. That decision and signs that the United Nations may soon allow Iraq to resume exports drove oil prices below $15 a barrel. Gasoline is selling for under $1 a gallon.
Barry Galt, chairman of Seagull Energy Corporation of Houston, says the Saudis and Kuwaitis are keeping prices low out of gratitude for Iraq's defeat in the Gulf war. President Clinton ``is reaping the benefits of a marker issued to [former President] Bush,'' he says.
Mr. Galt points to the economic benefits: recovering growth, low inflation and interest rates, rising employment, and a record-high stock market. These developments ``are occurring over the battered and prostrate bodies of our already-savaged domestic energy industry,'' Galt says. The oil industry has lost more than 400,000 jobs over the past decade.
Galt dismisses the administration's Domestic Natural Gas and Oil Initiative, introduced last week, as ``drivel.'' Under the initiative, the Department of Interior will draft more attractive terms to encourage drilling in deep coastal waters. However, ``if those areas are marginal, better terms don't make a difference,'' says Robert Dunn, a director of Union Pacific Resources, which leads the industry in domestic drilling activity.
Oil companies would rather have access to areas with higher production potential that are off-limits, but opening them to drilling is not in the administration's plans. For instance, oil companies say that off the coast of North Carolina lies a field containing 5 trillion cubic feet of natural gas - 50 times larger than usual gas discoveries, and equivalent to one-fourth of annual US consumption.
``We want to deregulate and cut red tape,'' says William White, deputy secretary of energy. For instance, a study of an Amoco Corporation refinery found that federal law mandated certain pollution controls that were both costly and ineffective. Mr. White says the rules will be made flexible. But saving refiners money will not spur drilling by oil producers.
ALTHOUGH not a ``silver bullet,'' the administration's initiative is a step in the right direction, says Denise Bode, president of the Independent Petroleum Association of America (IPAA). The greatest need is to reduce the risk of a ``catastrophic'' oil and natural gas price collapse, she says. ``We risk losing another 100,000 [oil industry jobs] and 22 percent of our marginally economic wells'' because of the price decline after last month's OPEC meeting, Ms. Bode says.
The IPAA is not waiting for the Clinton administration to act. Last week it filed an emergency petition under Section 232 of the Trade Expansion Act to restrain oil imports and thus drive up the prices that domestic producers can charge.
``There is no free market'' for oil, Bode says. Hers was not one of the few hands that went up when Ed Rothschild, prominent critic of oil company profits, asked who favored letting the market set the price of oil, at an oil industry conference here this week. When Mr. Rothschild asked who thought the price of oil was too low, most hands were raised.
Mr. Dunn says if prices stay low, it will affect Union Pacific's plans. But he says overproduction is less than 1 percent of total world demand, and that prices will rebound soon. Even if they do not, ``most companies are now sized to deal with $15 oil.''
Bode notes that Mr. Bush was too focused on Alaskan and Saudi Arabian oil, but did deregulate the natural gas market. Mr. Clinton, however, praised independent producers but later proposed a BTU tax ``that would have put us out of business.''