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Oil Analysts See Glut, Say Lower Prices May Be Saudi Favor for Bush

December 18, 1991

NEW YORK (AP) _ Ask a petroleum expert to peer into the crystal ball these days, and he’s likely to envision a glut of crude oil in the spring.

Ask for a forecast on prices and you’re likely to hear a magic number of $15 per barrel for premium grades of oil.

That would be the lowest in nearly two years, but it doesn’t seem unreasonable if oil prices continue their plunge from $24 per barrel in late October to below $20 this month.

″We think $15 is a good target. We think there is a potential for oil prices to go lower than that,″ said Vincent Malanga, president of LaSalle Economics Inc. in New York.

Others disagree, saying prices could go higher. But the bears seem to be much more vocal lately.

In an economic sense, the experts say, supply will outstrip demand. The demand will fall for seasonal reasons, while supply could rise as production snuffed out by the Gulf crisis resumes.

After Iraq invaded Kuwait in August 1990, the United Nations embargoed exports of their oil and neither has been able to sell much since.

On the political level, many experts view lower oil prices as Saudi Arabia’s payoff to President Bush for fighting the Gulf War.

The war kicked Saddam Hussein’s army out of Kuwait and erased fears that Iraq could capture Saudi oilfields as well. In recent OPEC meetings, the Saudis have shown no willingness to cut their production, which rose by some 3 million barrels a day after Kuwait was seized.

″I really, truly believe that the Saudis, especially, are making a contribution to George’s economic recovery and subsequent re-election,″ said Mike Doyle, editor of Computer Petroleum Corp., of St. Paul, Minn., which tracks a variety of petroleum prices.

Assuming people vote their pocketbooks, lower oil prices would help incumbents by giving millions of voters more disposable income.

″Crude oil prices do not sway primarily to supply and demand,″ Doyle said. ″Those are still factors that can come into play for sure, but in between the extremes of shortages and oversupply, it’s truly a political price-setting mechanism.″

At the Washington-based consumers group Citizen Action, energy policy director Edwin Rothschild agrees.

He points out that Saudi Arabia’s King Fahd was recently quoted as saying of Bush: ″A man of this caliber deserves to head the United States another time.″

Rothschild argues that since the mid-1980s, if you throw out the wildly swinging oil prices from the Persian Gulf crisis as a fluke, the cost of petroleum generally has been lower heading into elections.

″The lower prices have all occurred in even-numbered years,″ he said. ″My suspicion is it has something to do with elections in the United States. I can’t absolutely prove it, but the weight of the circumstantial evidence is overwhelming.″

Some in the oil industry dismiss such theories as nonsense. They also say Saudi Arabia wants to keep oil prices down to prevent its customers from seeking alternative energy sources.

″You don’t have to have this kind of a conspiracy theory. Besides, the U.S. economy is very complex,″ said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York.

But at least one major oil company economist said that while the Saudis pursue their own economic interests, they no doubt are thankful to be rid of any threat from the Iraqis.

″There probably is some feeling that they don’t want prices to go to $25 a barrel and have some effect on industrial economies, when we’ve just come to their aid,″ said Bill Hermann, chief economist of Chevron Corp. ″There’s probably something to that.″

Lower oil prices wouldn’t do much for Bush in the nation’s oil patch, which is reeling from a devastating decade that cost thousands of jobs and brought on a slew of bank and business failures.

″Is he willing to sacrifice the Southwest for the advantages to the Northeast?″ said Thomas P. Blakeslee, an oil analyst at Pegasus Econometric Group Inc., in Hoboken, N.J. ″That’s what you have to wonder.″

Just because oil traders predict oil prices will fall doesn’t mean it will happen. A year ago, while the world waited for the Gulf War to begin, the experts predicted prices would soar when it started.

Instead, prices collapsed.

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