Expensive oil is no good for the US, cheap oil even worse

Aug 14, 1999 02:00 AM

Back when Americans were coping with the energy crisis, the idea that there could someday be a trade complaint against cheap oil imports would have got anyone laughed out of the line at the gasoline pump.
But there's just been one, the charge by small U.S. producers that four exporting nations dumped cut-rate oil on the market in violation of American trade laws, depressing their prices and crippling their business.
The Commerce Department dismissed their case. By the time it was filed, the market had turned up, after two years of plunging prices.
World prices, which slumped because of slackening demand and overflow supplies, have been increasing. The Organization of Petroleum Exporting Countries agreed on production curbs to push up prices. Demand is going up, too, and the Energy Department expects higher world oil prices to hold for the rest of this year and all of 2000.
The Paris-based International Energy Agency says the oil glut of 1998 is yielding to tightening markets in 2000. At the same time, U.S. oil imports are expected to increase. Twenty-five years ago, when the Arab oil embargo choked supplies, led to those lines at the gasoline pump and sent prices up four times over, oil imports accounted for 36 % of U.S. consumption.

President Nixon said the United States should produce and conserve its way to energy self-sufficiency by 1980. Instead, imports went up, past 40 % when President Carter declared the moral equivalent of war against the energy crisis of the late 1970s.
Conservation efforts begun in that era have made the nation more energy efficient. But demand, and diminishing domestic production, have made it more reliant on imports.
In 1990, Congress voted to declare that 50 % dependence on imported oil was the peril point for national security. Four years later, imports exceeded half of U.S. use for the first time. The estimate now is 56 %, and increasing. According to the Energy Department, net imports could account for nearly 70 % of U.S. consumption by2020.

No crisis, though, so no issue, except for the complaint of the small oilmen and their congressional allies, who want legislation to help them stay in business. There are House and Senate bills to do it with tax breaks and other incentives.
A $ 246 mm tax break for small producers is part of the Republican tax cut, passed by Congress but bound for a veto when it gets to President Clinton.
By Energy Department estimate, U.S. oil consumption is expected to increase by nearly 3 % this year and next. But domestic oil production is forecast to decline by 3.7 % this year and an additional 1.1 % in 2000.

The independent producers who lodged the cheap oil complaint argued that Saudi Arabia, Mexico, Venezuela and Iraq had been dumping cheap oil in violation of U.S. trade laws, at the expense of their business. The group called Save Domestic Oil Inc. sought to trigger anti-dumping laws, which could have led to steep tariffs on about 60 % of the oil imported into the United States. It was rejected for lack of broad support in the oil industry; and while the independent group said it would appeal, that would take years.
The American Petroleum Institute, representing major producers, had opposed the trade move by the independents. "There is no question that low world oil prices have seriously harmed U.S. producers, their workers and related industries," the API said after the case was dismissed. "Many thousands of people have lost their jobs and many firms have been shut down. But these low prices were set by the forces of supply and demand in international markets, not by alleged unfair pricing." Those markets can pump prices up, too. That's been the more customary American complaint about foreign producers.

Source: AP
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