Saudi’s Pledge Takes the Heat Off Oil Prices
The spike in oil prices eased Tuesday after reassuring words from oil giant Saudi Arabia, but not before lending new political momentum to the long-debated proposal to open the Alaskan wildlife refuge to drilling.
World petroleum prices, which have risen sharply as violence in the Middle East surged, retreated as much as 3.5% in daily trading after a Saudi official promised that his country would make up for any shortfall produced by a just-announced Iraqi oil embargo.
The Saudi pledge, and evidence that Israel was beginning to withdraw from a few Palestinian cities on the West Bank, appeared to stabilize an oil price disturbance that many economists contend never was a serious economic threat.
That contention was bolstered Tuesday with the release of American Petroleum Institute statistics showing a sharp rise in crude and gasoline inventories, which work to deflate prices.
“Iraq notwithstanding, there is plenty of crude in the market. U.S. stocks remain above the four-year average and gasoline does as well,” said John Kingston, global oil director at Platts, a division of McGraw-Hill.
But President Bush and other Republicans seized on the perceived peril to accelerate their efforts to enact a legislative proposal that would open a small part of the 19-million-acre wilderness to drilling. Republicans in Congress said they would seek a pro-drilling amendment this week to the energy bill now nearing a vote.
Bush, a former oil executive, told the Wall Street Journal that the unstable oil situation “is a reason why I do not believe that we’re out of the economic woods yet” and underscores the need to drill for oil in the wildlife refuge.
And in a sign that the Middle East crisis may be creating new U.S. political alignments, a coalition of American Jewish groups, including the American Jewish Congress and B’nai B’rith, declared that it now supports the proposal to permit drilling in the wilderness.
Oil prices have risen by about one-third this year, and the prospect of higher oil prices driving up inflation worries the administration. Prices hit $1.413 a gallon Monday for self-serve regular gasoline; the average gasoline price in California rose 3 cents in the last week to $1.622 a gallon.
The increases have come as the market has fretted about an intensifying Middle East conflict, labor unrest in Venezuela and Iraqi President Saddam Hussein’s announcement that he would halt production for 30 days to protest the Israeli incursion in the West Bank.
Yet Saudi Oil Minister Ali Ibrahim Naimi was quoted Tuesday in Saudi newspapers saying that oil prices should not be linked to events in the Middle East and that his country--which has by far the world’s biggest oil reserves--would help make up for any losses caused by Iraq’s embargo.
“I believe there is no threat to the reliability of worldwide oil supplies and to the reliability of the Saudi supply in particular,” Naimi was quoted as saying.
His comments appeared the day after Saudi Crown Prince Abdullah dined in Casablanca with Secretary of State Colin L. Powell, who is on an urgent peace mission to the Middle East. Oil industry experts said it is routine for U.S. officials to quietly seek such assurances during times of price disturbances.
The Organization of the Petroleum Exporting Countries currently has about 7 million barrels per day of excess capacity, and Saudi Arabia alone easily could increase production enough to drive prices into an acceptable range, analysts say.
Brent crude oil for May delivery fell 3.5% to $26.08 a barrel on the International Petroleum Exchange in London after the Saudi minister’s comments.
U.S. officials said they were encouraged by his comments and also by the fact that no oil producers had joined Hussein’s embargo.
“I think the public comments that have been made have been quite reassuring, and based on that, I think it shows that certainly the OPEC leadership has stayed committed to the position that they aren’t going to use oil as a political weapon,” said Energy Secretary Spencer Abraham.
In Berlin, Treasury Secretary Paul H. O’Neill told reporters that oil prices are within an acceptable range and aren’t likely to increase more than they have in the last month.
“I don’t know anything that suggests it’s going to go higher,” O’Neill said.
But that wasn’t the message from pro-drilling Republicans in Congress.
“With each passing hour, the Middle East grows more unstable,” warned Sen. Frank H. Murkowski (R-Alaska). “And with each passing day, the U.S. grows more dependent on foreign sources for energy.” The United States now imports about half its oil, compared with about one-third at the time of the oil embargo in 1973.
In a bid to weaken Democratic opposition to drilling in the Arctic refuge, supporters of the drilling touted support from the Jewish groups, traditionally a key part of the Democratic political base.
The Jewish groups said U.S. foreign policy should not be driven by Iraq’s attempt to use oil as a weapon.
Chuck Brooks, Washington representative of the American Jewish Congress, said the group supports a comprehensive energy bill that may include drilling in the Arctic refuge “with environmental safeguards.”
But, he added, “We think the most important thing is to pass a bill,” whether or not drilling in the Arctic refuge is included.
The endorsement of Arctic drilling is a reversal for the American Jewish Congress, which adopted a resolution in January saying the amount of potential oil from the refuge was “too small to make a significant impact” on U.S. supplies.
Yet as the Democratic-controlled Senate moved closer to a vote on the marquee issue in the energy debate, opponents of the drilling remained confident that they have the votes to block it.
Sen. Joseph I. Lieberman (D-Conn.) said the Middle East crisis “is far too complicated to be solved by drilling in the Arctic refuge. And the fact that we’re hearing such a far-flung argument tells me that those who want to drill don’t have the votes. The fact remains that drilling in the Arctic refuge wouldn’t produce a drop of oil for another 10 years.”
Karen Nozik, Washington representative of the Coalition on the Environment and Jewish Life, an alliance of 29 Jewish organizations, said the Jewish groups supporting drilling in the Arctic refuge “are not speaking for everyone. There is a very large constituency that does not think that drilling in the Arctic refuge is the answer to our nation’s energy security.”
Times staff writers Chris Kraul in Mexico City and Janet Hook and Ronald Brownstein in Washington contributed to this report.