Charles Witz stands under the canopy of a self-serve station in downtown Chicago, pumping super unleaded gasoline into his new, black Toyota Celica convertible. Don`t bother asking Witz the price; he doesn`t know.
”I don`t pay attention,” the Chicago attorney confesses, glancing at the pump, which reads $1.259 a gallon. At today`s prices, he figures, even premium is a bargain.
Such a lackadaisical attitude would have seemed almost traitorous a few years ago, when the Organization of Petroleum Exporting Countries appeared hellbent on wringing every last dime from American consumers.
These days, however, it`s typical-thanks to OPEC. Under the leadership of Saudi Arabia, the once-vilified cartel now appears more interested in keeping oil prices down than in pushing them ever higher.
It`s a curious turn, because it makes no economic sense.
If all the Saudis were after was money, they would unilaterally cut their production to tighten worldwide supply. The subsequent price rise would raise millions of dollars more for them and all oil producers.
And the Saudis do need money. The monarchy, once one of the world`s wealthiest governments, now finds itself reduced to borrowing, just like any other Third World state.
But instead of acting in its own self-interest, Saudi Arabia has effectively abandoned OPEC`s official price of $18 a barrel, oil industry analysts say, and actually seems to prefer a price near $15 a barrel.
Has Riyadh gone off the deep end?
”That`s the $64,000 question,” says Sarah Emerson, vice president of Energy Security Analysis Inc. in Washington.
Answers are, at best, only educated guesses, since the kingdom feels no need to explain itself. But there are guesses galore, all pointing to a Saudi Arabia trying to manipulate oil prices to achieve some foreign policy goal.
Notes Shireen Hunter, deputy director of Middle East Studies at Washington`s Center for Strategic and International Studies: ”The Saudis have always viewed oil as a political instrument. It`s the only thing they have.” One highly plausible explanation is that King Fahd is fed up with being played the sucker by the world`s other oil exporters, both within and outside OPEC, who have steadily raised their output while Saudi Arabia scaled back its own to prop up prices.
”The Saudis are trying to get the attention of other oil exporters,”
says Philip Verleger Jr., a visiting fellow at the Institute of International Economics in Washington. ”And if they can`t get their attention, then we`ll have $5 (a barrel) oil.”
But oil industry analysts and executives believe there are hidden reasons as well, all connected with the complex and changing politics of the Middle East. Depending on the theorist, the world`s biggest oil exporter is working to hold down petroleum prices to also:
– Starve a cash-hungry Iran to coerce it into formally ending its now-suspended war with fellow OPEC member and Saudi ally Iraq.
– Warn Iraq that Saudi Arabia could unleash a price-collapsing flood of oil unless Iraq gives up plans to pump even more and rejoins OPEC`s quota system.
– Guarantee a long-term market for Saudi oil by simultaneously pumping up demand and making high-cost non-OPEC production unprofitable, suppressing supply.
– Help promote Vice President George Bush to the White House by buying off Middle America at the gas pump.
– Pay back the United States and other Western powers for patrolling the Persian Gulf and obligate the West to further defend it through military hardware sales.
– Fuel the U.S. economy, in which Saudi Arabia now has a vested interest through deals such as its refining and marketing venture with Texaco Inc.
Or perhaps there is no grand strategy. The kingdom, say some oil analysts and executives, could simply be bumbling along under a ruler who is regarded by one OPEC expert to be ”not very bright” and by another to be
”whimsical.”
Whatever the reason, months of price discounts and above-quota production by Saudi Arabia and its Persian Gulf brethren have had a big effect on the world oil market.
Over the last 14 months, prices have dropped by a third, to $14.50 a barrel in the United States and $11.50 in the Middle East, which is about where they were 10 years ago.
And the United States, as the world`s biggest oil consumer, is better off for the decline, in the view of most economists.
Indeed, economists say the unprecedented growth of the U.S. economy-which has been expanding nonstop since November, 1982-would have been diminished and might even have ended had it not been for skidding fuel prices.
”I think it`s not insignificant that since we`ve had lower prices, this economic growth has been sustained,” says Joseph Stanislaw, the Paris-based Energy Research Associates.
Of course, the growth is uneven, and in some regions the oil market`s downturn has been devastating.
Oil-producing states such as Texas, Louisiana, Oklahoma and Alaska have been in a recession for most of the decade, dependent on oil revenue that is no longer there and may not be for several years, if then.
”People in the Southwest are getting their brains beat out by cheap foreign oil,” bemoans Robert Terbrock, a shoe salesman from Dallas who fills up a Mercury Grand Marquis at the downtown Chicago gas station shortly after Witz drives off.
Moreover, there are worries that depressed oil prices will hurry up the decline in U.S. production, risking national security.
But several government studies have concluded that the country is less vulnerable to an oil cutoff than it was in the 1970s, aided in large part by a rise in the number of exporters around the world.
In addition, the U.S. as a whole consumes much more oil than it produces and so gains more from lower prices than it loses, economists say.
Among the benefits, according to Sarah Johnson, a senior economist at Data Resources Inc. in Lexington, Mass., is a 0.5 percent reduction in inflation at the consumer level, where it has been running at 4 percent this year.
But if consumers are shrugging their shoulders about prices these days, most of the world`s oil producers are up in arms.
Worried that they can`t afford depressed prices much longer for what is their only foreign-exchange earner, OPEC`s most populous nations are pushing for an emergency meeting of the 13-nation cartel to jack up prices. A date could be set as soon as Monday.
That is when OPEC`s price-monitoring committee, which is empowered to call an extraordinary meeting, will wrap up a two-day strategy session.
But oil analysts say a special meeting would almost certainly be vetoed by Saudi Petroleum Minister Hisham Nazer, who is on the committee along with the oil ministers of Algeria, Indonesia, Nigeria and Venezuela.
Nor do analysts see the Saudis bending at the organization`s next scheduled meeting at OPEC`s headquarters in Vienna on Nov. 21. Another deadlock, says Simon Trimble, an analyst with Shearson Lehman Hutton Inc. in London, is the likely outcome.
And coming off months of quota-busting production, failure to forge a workable pact could knock oil prices back into single-digits, Rilwanu Lukman, OPEC`s president and Nigeria`s oil minister, has said.
That may be just what Saudi Arabia wants, however. Analysts and oil company executives say a price collapse could help the kingdom accomplish any of the short-term goals ascribed to it.
Pinched even more, oil exporters worldwide may align with OPEC and order price-salvaging cutbacks. Thus, Saudi Arabia wouldn`t be cornered into single- handedly defending oil prices.
Meanwhile, Iraq is emerging as OPEC`s ”Frankenstein,” says Shireen Hunter, of the Center for Strategic and International Studies in Washington.
Now the No. 2 producer within OPEC, pumping 2.8 million barrels a day, Iraq has refused to limit itself until it is given the same, higher quota as Iran. Iraq`s production could soon near 4.5 million barrels a day.
The price-depressing effect of Saudi Arabia`s recent over-quota production-put by a U.S. Energy Department analyst at 4.8 million barrels a day in September, or 10 percent more than its 4.3 million-barrel-a-day ceiling-could force Iraq to mend its ways.
By saturating the market, Saudi Arabia may be trying to school Iraq, which refuses any quota. The lesson: that it will get no more money from pumping more oil, because each added barrel only erodes prices further.
Iran`s assent would also be needed to bring Iraq back within the quota system.
But devastated by war and desperate for cash, Ayatollah Ruhollah Khomeini`s Islamic republic may knuckle under to Saudi pressure-as Middle East experts say it did last summer in agreeing to truce talks with Iraq-and assure production parity and peace with Iraq, reuniting OPEC.
Given the desperation of the Third World, the Saudi share of the world oil market might not grow until the mid-1990s-unless the kingdom sets an even lower mark for oil prices, say $10 a barrel. And even Saudi Arabia seems rational enough to see that that would be economic suicide.
