Even the temporary halt in the deposits to the American’s Strategic Petroleum Reserve, ordered by US President George w. Bush last week, did little more than nudge the crude spiral down from past $75 to upward of $70 the barrel.
In the foreseeable range, prices can only perk up again, given the unresolved Iranian nuclear issue, the restiveness in Nigeria, the combativeness of Venezuela’s Hugo Chavez and the mayhem in Iraq.
At the same time, even at $75-80, a barrel of oil would still fall below the 1979-80 level of $40, which is equivalent to $90-95 of today.
All the experts agree that there is no real shortage of crude and therefore this is not the cause of the upward price spiral, as it was after the 1979-80 Khomeinist revolution in Iran. Therefore, pumping greater quantities into the market will not level the prices.
In 2003, the average price of a barrel was $28, rising a year later to $38.
Since then, fifteen consecutive leaps starting in June 2004 have practically doubled monthly contract prices, each wave – after adjustments – adding $2 to the price of every single barrel.
The April 2005 summit meeting between President Bush and Saudi King Abdullah was projected to stabilize average prices to the $45-50 level. But two months later, the price took off and hit $60 a barrel, unheeding of the $45-50 ceiling set by the Saudis and most of the Gulf oil emirates.
This week too, concerned politicians tried to cool the overheated price of crude.
Saudi Crown Prince Sultan broadcast a statement over Japanese television and told a news conference back home from his Asian tour in early April that Riyadh wants to see the price go down and to this end had boosted Saudi production capacity to 12 million bpd.
Bush joined the effort this week by giving the Environmental Protection Agency authority to relax regional clean-fuel standards to attract more gasoline imports to the United States and so ease the movement of supplies from one state to another.
He also deferred deposits to the SPR until the fall, to expand gasoline refining during the summer.
DEBKA-Net-Weekly reports that most analysts and experts were skeptical of these measures having much effect on world prices; since a shortage of crude is not the root of the trouble, injecting more supplies will not cure it.
Members of the OPEC cartel agree; they have long contended that the pressure on prices derives from the refining bottleneck and urged the building of more refineries.
This demand is addressed to Western consumers, especially the United States which has not built a single new refinery in 15 years. This situation is further aggravated by the failure of the Gulf of Mexico processing plants to return to full operation since the battering they took from Hurricane Katrina.
High prices fill the pockets of the oil giants
The US president’s package of measures was designed to cool prices somewhat while not detracting from the profits of the big oil corporations; they are at war with the stringent federal fuel standards enforced by the environmentalists on gasoline refined in the United States because their profits suffer. The US president therefore offered waivers to let them import and market lower grade energy.
Along with OPEC members, which supply one-third of the world’s oil consumption, and the non-OPEC producers, the main beneficiaries of the two-year price surge are undoubtedly the major oil companies.
These companies control much of America’s refining industry. On gasoline, they enjoy a 40% profit margin the cost of crude. Their excessive profits are thus exposed as the prime cause of the red-hot price crisis.
Exxon Mobil’s 2005 profits shot up to $36 billion, according to the report published this week. On April 26, the Senate Finance Committee embarked on a comprehensive inquiry into the federal taxes the oil firms paid for their colossal revenues.
While the Republican president is pursuing short-term fixes in an effort to cool oil prices without reducing the oil giants’ profitability, the senate committee and other public bodies have begun to take aim at the prime cause of surging prices in the last two years: the excessive profits lapped up by the oil companies.
The preferential treatment awarded them under the present administration has left them free to exploit the soaring prices to pressure the producing countries for licenses to take part in the development of new oil fields. The demand acquires urgency from the purported world energy shortage. An artificial shortage is intended to put the squeeze on the countries, especially Saudi Arabia and Latin America, which have dug their heels in against giving foreigners a stake in the expansion of their production capacity.
In 1998, Prince Abdullah, then heir to the Saudi throne, gave foreign companies licenses to invest in Saudi oil production. Later he backed down and annulled all the contracts; foreign companies were now cut out of the new fields.
In the last two years, those major oil companies have struck back. They have been using the price spiral as a lever to get back in. But caught in the act, they may be forced into defensive positions and eventually let fuel prices slide down.