April 20, 2004

All about the oil
Posted by Jon Henke

In response to Woodwards allegations that Bush arranged a deal with the Saudi government to lower gas prices close to the election, Kevin Drums writes...

Elsewhere in the conservative blogosphere this revelation seems to have merited simple silence. Maybe they just don't believe Woodward. But surely the fact that Saudi Arabia — a country that has been demonized regularly by conservatives — is now said to be actively aiding George Bush's reelection is at least worthy of comment, isn't it? What would be the reaction if Woodward reported that Jacques Chirac had agreed to hold up a new UN resolution until November, just to make Bush look bad?
That's fair. I haven't really said much about this, because the information thus far is just so spare. We've got an unsourced allegation - though, one from a credible reporter - that the Saudi's said they wanted to lower oil prices this year.

Is it a deal, for political gain? We really don't have any evidence of that. If so, why? Oil prices are already high, and if Saudi Arabia is planning to give Bush a hand, they certainly haven't evidenced it, yet. I mean, they've been cutting production at every OPEC meeting for awhile now.

Further, Woodward seems to be indicating this story isn't as it's been portrayed....

WOODWARD: What I say in the book is, according to Bandar, the Saudis hoped to control oil prices in the 10 months running up to the election because if they skyrocketed, it would hurt the American economy.
...
WOODWARD: In the book, it's one -- I'm sorry, it's two sentences, and I don't say there is a secret deal or any collaboration on this. I say that Bandar and the Saudis hoped to put prices -- now, I understand there's something on the wire from Bloomberg saying that, in fact, the Saudis have said this, that in the period before the election, they told the president directly that they wanted to keep oil prices low in a range. So...

KING: Well, that's -- that would make Kerry correct, saying they're affecting the campaign.

WOODWARD: Well, I don't know. I mean, Kerry has taken this to the next level. This always gets caught in the political crossfire, and I'm trying to stick with what my reporting showed. And if you looked at it, as the people at "60 Minutes" did, and so forth, you would see how good the sourcing is.

Finally, and most importantly to me, this story just isn't "new". Really. We've known of the Saudi intent to keep prices from going very high - even lower them later this year - for some time. From a story in early April....
Saudi Arabia will act to counter any oil shortage on the world market, Saudi Ambassador to the United States Prince Bandar ibn Sultan said Thursday after meeting with US President George W. Bush at the White House.

The meeting took place as the Organization of Petroleum Exporting Countries, of which Saudi Arabia is a leading member, cut back on production by one million barrels per day for April, a move that threatened to raise already record high US gasoline prices.

“We will not allow any shortage on the world oil market,” said the envoy. “Oil prices should be between 22 and 28 dollars (a barrel). My government’s target is 25 dollars.” Current oil prices are around $35 a barrel.

Further, a great deal of the cause of higher oil prices has relatively little to do with Saudi Arabia, and a great deal to do with insecurity in the world oil markets and the devaluation of the dollar - the currency for world oil exchange.

Finally, there's one more problem with the idea that Saudi Arabia is upping output in an election year to help Bush. The problem? This has all happened before, and for the same reasons the Saudi's offer this time. During an election year. Specifically,
in 2000....

Republicans are likely to have a harder time getting political mileage out of the cost of oil after this week's decision by OPEC countries to boost production. The increase isn't as much as the Clinton Administration had initially hoped for, but should still be enough to bring prices down somewhat in time for summer.
...
The President started off this week's news conference by focusing on the OPEC news, which had been further sweetened during the day by Iran's decision to go along with the production increases. "I would like to begin by saying that yesterday's announcement that OPEC members will increase oil production, is good news for our economy and for the American consumer," said Mr. Clinton as he started his news conference, "These increases should bring lower prices, which will help to sustain economic growth here in America, and also and very importantly, throughout the world." The good news was also particularly well-timed for the President in light of more negative recent developments such as the White House email scandal and today's ruling that Kathleen Willey's privacy had been violated.
Needless to say, it didn't help Bush or the Republicans at the time. For that matter, oil prices were also depressed in 1996 by President Clinton.
America's independent oil and natural gas producers criticized President Clinton's decision yesterday to sell $227 million (or 12 million barrels of crude oil) from the nation's Strategic Petroleum Reserve in an effort to lower gasoline prices nationwide.
...
President Clinton is reacting to high gasoline prices and hopes that the flood of SPR oil into the marketplace will increase supply while lowering prices.
So, while the left-of-center side of the blogosphere is going nuts about this, I'm going to hold off on making a judgement. We've too little information, but plenty of historical precedent.

UPDATE: Captain Ed has more.

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Comments

It's ridiculous. Why would the Saudis want to keep Bush in? I can't imagine how "a deal" would be structured.

Posted by: John Rogers at April 20, 2004 11:03 AM

In 1988, at OPEC HQ in Vienna Austria, I heard a spokesman for OPEC say that the cartel had learned a hard lesson in the oil boycotts of the '70s. We went on to say that the cartel never again would try to impose an economic shock on the global economy because it tended to teach oil consumers how to use less oil and to use oil more efficiently.

Posted by: George at April 20, 2004 11:14 AM

Why "hold off judgement"? The Saudis have been the swing-producers and price doves of OPEC for DECADES, usually trying to calibrate things so as not to hurt the US, Japanese, and European economies. Their fiscal situation has worsened since the 70s, but I don't think their (at least relative) role as OPEC price doves has changed. The people going nuts are the same ones who go nuts over every non-issue. My favorite part of this silliness is the political calculation that Kerry made to conclude that lower oil prices would be seen as a bad thing. Maybe one of the lightweights can explain that to me.

Posted by: IceCold at April 20, 2004 11:15 AM

I guess with his bush awol story DOA and Kerry refusing to give his military records, Kevin needs to manufacture a new pseudo crisis

Posted by: capt joe at April 20, 2004 07:58 PM

Evidently Drum can't even read historical data. Anyone who tracks deflated gas prices over the past half-century would see that generally prices go up from May or so through about Labor Day and then down until about November or so, then plateau from late December until March or so. Hard to believe that this could be related to 1) driving season and summer; 2) kids going back to school, less driving; 3) winter heat supply demand.

Of course, the fact that it shows decided impacts directly related to the move to formulated gas for various different markets for summer, causing additional price pressure in March and April means nothing. Nothing to see here. Move along. Move along.

Posted by: JorgXMcKie at April 20, 2004 11:20 PM