Bush to ask Saudis for lower oil prices

Bush to ask Saudis for lower oil prices

McClatchy Newspapers

WASHINGTON — In April 1986, Vice President George H.W. Bush traveled to Saudi Arabia with a stern warning. Record low oil prices of $10 a barrel threatened the U.S. oil industry and U.S. national security. If prices don’t rise, he warned, perhaps a U.S. tariff on imported oil would do the job.

More than 22 years later, his son George W. Bush is on a similar mission, but with the opposite goal in mind. President Bush meets today with Saudi King Abdullah and will lobby for help in bringing down world oil prices, which have raced past $125 a barrel.

Then and now, the Saudis are the only oil power with enough unused production capacity to make a difference on price if they increase supply. But the hard fact is that the world oil market has changed, and Saudi Arabia is far from the only producer holding the fate of U.S. consumers in its hands. Even if the Saudis increase production, shortfalls elsewhere, along with rising global demand, can offset their efforts — and are.

Many Americans grumbling at the gas pump are quick to blame the Saudis for their woes — just as many might be surprised to learn that Saudi Arabia trails Canada and Mexico as the chief suppliers of foreign oil to the United States and isn’t far ahead of Venezuela, Nigeria and Angola. In 2006, Saudi Arabia provided only 14 percent of U.S. oil imports. Still, if it boosted production significantly, added world supplies would tend to drive global oil prices down, regardless of who bought their exports.

Saudi Arabia is the world’s only significant swing producer: Its oil production can be ratcheted up or down to lower or raise prices worldwide. (Iraq potentially could do the same if ever it achieved stability, but that’s not a near-term prospect.)

So what have the Saudis done since 2005, when oil prices climbed above $70 a barrel, then $80, then $90, and this year broke the once-unthinkable threshold of $100? They have increased production capacity, meaning that in a pinch they could make up the difference between global demand and available supply. They now can produce 11 million barrels per day, or bpd, and expect that number to reach 12.5 million bpd by 2010.

“They’ve not only invested tens of millions of dollars to increase production capacity. They’ve increased their actual production from 8.5 million barrels per day to 9.2,” said Frank Verrastro, director of the energy and national security program at the Center for Strategic and International Studies, a center-right think tank.

His numbers are somewhat squishy; actual production numbers are hard to verify. Some critics believe that the Saudi government has increased capacity but actually dropped output by 1 million bpd over the past two years. The Energy Information Administration, the statistical arm of the Energy Department, said that in 2006 the Saudis produced 10.7 million bpd.