"Traditionally, if oil companies have money they spend it - it's like Pavlov's dogs.
This time the bell's ringing and the dog's not salivating."
Financial Times, Friday March 31
Crude touch of Washington's oil price diplomacy - Unnecessary PR Disaster That Damaged American Standing
When it comes to energy, Washington policymakers, known for having the most skilled spinmeisters, could use a public relations refresher course.
Of the many lessons learned in the aftermath of this week's meeting of the Organisation of Petroleum Exporting Countries (Opec), it has become clear that Washington had a domestic problem on its hands and it bungled its public relations effort.
Listening to US policymakers over the course of the Opec meeting, one might have believed that the main issue on the table was cheap petrol for Americans. "Internationally, Americans are perceived as expecting low energy prices and thinking they are a God-given right," said one oil company executive.
Lost was the more noble policy goal of avoiding a prolonged period of Dollars 35-a-barrel oil and a global economic disaster.
Analysts say that the emphasis the Clinton administration placed on assuaging public alarm over petrol prices, pushing Bill Richardson, the energy secretary, out into the limelight to talk about cheap oil while lobbying Opec ministers, not only overshadowed the bigger policy goal, but may have had more serious repercussions for relations with the Middle East.
Some said the administration was right to push for a lower trading band for oil prices, but criticised Mr Richardson's "quiet diplomacy" as heavy handed.
"I'm not saying they shouldn't have done it. The question is should they have made it so public," said Amy Jaffe, senior energy analyst with the James A. Baker III Institute for Public Policy at Rice University in Houston.
"They've accomplished nothing from a physical point of view that wouldn't have happened anyway, but they've done a lot to damage the view of America from inside the countries of the Gulf, and they've hurt the image of the leaders in the Gulf."
Opec members were more or less agreed on an oil production increase at the time Mr Richardson began meeting members of Opec, analysts said. His high-profile campaign, however, was viewed by some of the oil ministers and citizens of Opec countries as meddlesome.
Iran's initial objection to a production pact and US interference exemplified how the US made the meeting more difficult, said other observers. Its actions could even slow the process of rapprochement between the two countries, they said.
Some even suggested it could strengthen the hand of radicalism in the Middle East for leaders to be seen as handing back valuable oil revenues for the sake of rich Americans demanding cheap fuel.
The irony for Mr Richardson may be that the increase in oil supplies might be too late to reduce petrol prices in time for the summer driving season. The impact of lower oil prices on retail petrol prices is expected to be small; moreover, the market is likely to be affected by continued low levels of petrol inventories at high demand. That could result in high petrol prices through the summer, and potential price spikes should refinery problems occur.
A big lesson for oil companies is the importance of stable oil prices. The public furore has shown that there is a price level above which there are going to be domestic problems.
The oil companies should take more than just commercial considerations into account in managing their inventories, Ms Jaffe said. Had Opec not acted, the US might have seen petrol lines this summer, she said.
Oil companies have also learned to be more cautious throughout this cycle, during which oil prices swung from all-time lows to all-time highs.
"Traditionally, if oil companies have money they spend it - it's like Pavlov's dogs," said Art Smith, president of John S. Herold, a Connecticut-based petroleum research company. "This time the bell's ringing and the dog's not salivating."
He said that now, although cash flow in the industry was strong, companies were spending it on reducing debt and buying back shares to further strengthen their balance sheets.
This year it would have a record year of cash flow, but instead of spending 90 per cent of it, as the industry would have done in the past, it would spend 60 per cent of it on upstream exploration programmes.
Carmakers still in search of holy grail on fuel efficiency and price
US carmakers yesterday joined the Clinton administration to extol their seven-year-old partnership to design more fuel-efficient cars. But they conceded they had yet to crack the issue of producing vehicles at prices consumers are prepared to pay, Nikki Tait reports from Chicago.
"Consumers want 'moon-shot' technology at down-to-earth prices," said Jim Holden, president of DaimlerChrysler's US arm. Mr Holden said he believed the Partnership for a New Generation of Vehicles (PNGV), the industry-government initiative started in 1993, was working, "but we haven't solved the challenge yet".
Under the project, carmakers were charged with producing a family-sized sedan achieving at least 80 miles per gallon. Since then an estimated Dollars 1.6bn of funding - from industry and government - has been spent. Vehicles displayed yesterday included the Dodge ESX3, the Ford Prodigy and the GM Precept.
As Mr Holden stressed, the problem of encouraging fuel economy lies as much with consumer preferences and economics as with technology itself.
Spurred by increasingly varied design and Americans' penchant for size, utility vehicles have come to account for a large proportion of the new vehicle market in the US.
The move to encourage an electric-vehicle market - notably in California - has also suffered setbacks. GM announced a few weeks ago that it was recalling a large portion of battery-powered vehicles because of potential fire problems.
The industry's focus has switched towards "hybrids", which combine traditional petrol or diesel-powered engines with an electric motor to improve fuel economy. They can travel 700-1,000 miles on a single tank of fuel.
Honda became the first company to try selling a hybrid in the US when it launched the Insight model last year, and Toyota plans the Prius later this year. |
