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Politics : THE 2004 PRESIDENTIAL ELECTIONS -- Ignore unavailable to you. Want to Upgrade?

To: calgal who wrote (1342)	2/18/2004 12:16:29 AM
From: calgal	Read Replies (1) \| Respond to of 2164

Oil's Well ... From the February 23, 2004, issue: Even at $35 a barrel, the economy will probably be fine. by Irwin M. Stelzer 02/23/2004, Volume 009, Issue 23 GEORGE W. BUSH thinks the biggest danger to his second term comes from John Kerry, but it may come from $35 oil. His political team worries that last week's decision by the OPEC oil cartel to cut output, in order to keep oil prices up, will kill off the economic recovery. They can't forget what Dan Yergin, head of Cambridge Research Associates, keeps telling television audiences: Every recession since the 1970s has been associated with high energy prices. So the White House abandoned its usual policy of not reacting negatively to just about anything the oil cartel does by issuing a statement appealing for restraint: "It is our hope that producers do not take actions that undermine the American economy and American workers, and American consumers for that matter." For Bushies, that is what passes for sharp criticism of the Saudis and their OPEC partners. The cartel met in Algiers last week, worried that warm weather in the next few months would curtail demand for oil and bring down its price. Never mind that prices have risen about 15 percent this year, and already are well above what OPEC claims to be its target range of $22-$28 per barrel. Or that OPEC's revenue from international sales rose from $199 billion in 2002 to $247 billion last year, a jump of 25 percent. The producers, upset that their shrinking dollars don't go as far in Harrods and the south of France as they once did, have clearly, if covertly, raised their price target. Even though prices are now around $32-$33, OPEC's 11 oil ministers worry that the 1 to 2 million barrels per day they are producing in excess of their 24.5 million barrel per day quota will, come the spring thaw, cause a precipitous drop. "The market shows that there is an excess supply that worries everybody," Libya's Abdulhafid Mahmoud Zlitni told the press, suggesting that his country's admirable new restraint in the production of weapons of mass destruction will extend--less admirably, from Western consumers' point of view--to restraint in the production of crude oil. Sheikh Ahmad al-Fahd al-Sabah, Kuwait's oil minister (you remember Kuwait, the country we rescued from Saddam Hussein), seems to have carried the day with his proposal that production be cut sharply, first by eliminating output in excess of quotas, and beginning on April 1, by reducing production quotas by an additional million barrels per day. Phil Flynn, a senior market analyst at Alaron Trading, expects prices to hit $34 in the spring. And Philip Verleger, a longtime student of oil markets now making his home at the Institute for International Economics, thinks that is optimistic: He sees $40 oil in our near-term future. So we can file with other Saudi promises the statement made by Saudi oil minister Ali Naimi at the Davos World Economic Forum: "In OPEC in general and Saudi Arabia in particular we would like to see prices between $22 and $28, as near as possible to $25, and to stay there. That is the goal." All of which has the White House worried that its forecast, released last week, that the economy will create some 2.6 million jobs this year, might prove to be wishful thinking. And more than a few businessmen fear that the nascent economic recovery will be strangled at birth by the rapacity of OPEC's cartelists. To decide whether that nervousness is well founded, it is necessary, first, to guess whether OPEC can indeed keep prices up by cutting output, and whether nonmember producers will step up production to fill the gap. URL:http://www.weeklystandard.com/Content/Public/Articles/000/000/003/741jvwlq.asp