by Kamel Al-Harami

08-11-04

Oil prices dropped below $ 50.00 as soon as US President George W. Bush was elected for a second term in office. Oil prices have risen by over 70 % since Bush came to office in 2001.
The question is how will oil prices perform during his new 4-year term -- whether these prices will continue to rise or cool down. Although it’s difficult to predict the trend of oil prices for the next 4 years, there is, however, some positive indication the new US administration has a clear vision and strategy to solve and reduce US dependence on imported oil.

Today the US is the biggest oil consumer in the world; it uses 21 mm bpd of oil and imports 55 % of its consumption. It has less than 3 % of the world oil reserves and this is declining. It, on the other hand, consumes 25 % of the total world daily demand for oil.
President Bush will this time certainly push his Energy Bill, which will allow oil companies to drill and explore for more oil from the Arctic National Wildlife Refuge in Alaska, and also take some other measures to limit demand by providing some tax incentives to reduce oil consumption. He will have a clear objective on reducing US dependence on imported oil -- in particular from OPEC countries and especially from the Middle East. This will be his biggest challenge although it will be very difficult to achieve, since he knows that the Middle East has over 77 % of the total oil reserves.

The administration will also be directing its efforts towards alternative fuels like natural gas, renewable energy and other measures to limit and reduce energy dependency and slow the growth in demand. It will allow oil companies to build new refineries because no refinery has been built in US for over 28 years.
The energy policy for the new Bush term is clear, but whether it will get the necessary approval from the Congress is another question. There is also the question on how far the new energy bill will be effective in reducing oil consumption and dependence on imported oil. The environment also is a big issue in US, which is the main reason for the Congress to oppose oil drilling in Alaska.

The real challenge will be to work closely with all oil producing nations and to accept the fact the US is and will be dependent on imported oil for some time to come, till they find a real alternative. They have to live and accept this fact.
Oil prices will cool down, but if the pattern of consumption remains similar to the current one, with China’s economy growing at an excellent rate, slightly below 10 %, and the US dollar weak, then the average oil price for the next few years will remain as high as $ 48.00 per barrel -- providing there is no interruption to the oil supply from the Middle East or any other oil-rich region.

OPEC has said many times this year that it seeks a stable oil price and is producing at its maximum capacity. It no longer can produce more oil to meet global oil demand. It doesn’t have the necessary production capacity. Controlling growth is one solution but it won’t last.
The new US administration should, meanwhile, strive to solve the political problem in the Middle East in an even-handed and independent manner as this could provide the solution and security to its energy objectives... and stability to oil prices.

Source: arabtimesonline