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re: the optimum oil price for the us economy is about $20 a barrel!
3 dec 1997
steven hales wrote:
>when reagan came into office one of his first official acts was to lift
>price controls on oil. oil rose from $29 per barrel to $36. oil consumption
>dropped by 20% by the end of 1981. this de-control increased domestic
>production by over 100% by 1982 over 1979 production. this created a world
>wide oil glut and international prices eventually collapsed and opec was
>defeated...
here's the version from pages 55-56 of "who owns the sun," by daniel m. berman
and john t. o'connor, chelsea green, 1996:
reagan and bush worked closely with saudi arabia and the oil companies
to keep the price of oil around $20 per barrel. the initial task was to
pressure saudi arabia to flood the market with new production, to bring
the price down from a peak of $35 per barrel in the early 1980s [footnote:
see yergin, "the prize," ch. 34.] by early 1983, the treasury department
had completed a secret study that concluded that the us would profit if
oil dropped from $33 to $20 per barrel, and the administration worked
to get saudi arabia to cooperate with this scenario by raising its oil
output by several million barrels a day. after a meeting between president
reagan and king fahd in february 1985, saudi arabia's four major oil
customers--exxon, chevron, texaco, and mobil--proposed a "netback pricing"
scheme that would guarantee the companies $2 per barrel on all the saudi
oil they sold. with this new cost-plus incentive, us oil refinery
production and imports soared and the price of oil fell (as treasury had
predicted) to $10 to $15 per barrel. gasoline prices quickly dropped 45%,
helping create the sensation that was the ostensible reagan economic boom.
when the price of oil fell to $10 per barrel on the spot market in
early 1986, texas economists began to "worry" about the adverse effect
of low prices on an "already battered [domestic] oil industry and on
the segment of the banking industry that has larger energy portfolios,"
reported robert d. hershey in the new york times. "much of louisiana and
the southwest have been economically crippled [and] the texas unemployment
rate [is] now above the national average." so the administration sent
vice president bush to riyadh to persuade saudi arabia to limit production
and raise the oil price, and, lo and behold, the price did rise, to $20
per barrel. us oil drillers and producers survived, and saudi arabia
continued to prosper. during the maneuvering to raise the world oil
price, white house spokesman larry speakes continued to mouth a familiar
chatechism: "the way to address price stability is to let the free market
work"--as if politics had nothing to do with the price of oil. the idea
was this: keep oil prices high enought to ensure the profits of the
saudi-american oil complex and to keep the most efficient domestic
producers in business, and low enough to keep the world hooked on oil
and to hamstring the development of conservation and solar alternatives
in the us and overseas [footnote: this account of the manipulation of
oil prices is from edwin s. rothschild, "the roots of bush's oil policy,"
texas observer, february 14, 1992, pp 1-14; thomas w. lippman, "us tries
to influence oil prices, papers show," the washington post, july 21, 1992,
p 1; and robert d. hershey, jr, "us in shift, seems to view fall in oil
prices as a risk, not a boon," new york times, april 3, 1986, p. a1.]
nick
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