Powerless On Oil Prices

Powerless on oil prices

Dilip Hiro

March 14, 2008 3:00 PM

http://commentisfree.guardian.co.uk/dilip_hiro/2008/03/powerless_on_oil_prices.html

With oil prices soaring to $109 a barrel in an election year, the White House is getting jittery. President Bush is despatching vice-president Dick Cheney to Riyadh on Sunday to urge King Abdullah to raise the kingdom's oil output to reverse the price rise.

The chances of Cheney's success are slim: at Opec's quarterly meeting in Vienna last week, where Saudi Arabia is a leading player, the organisation decided against raising production.

In any case, the Bush administration's plea is based on assumptions that are invalid or outdated.

The size of oil supplies is just one factor among others that determine its market price.

An equally important factor is the capacity of refineries to transform crude oil into different end-products, with each refinery designed to process petroleum of certain density, which varies from 15 to 45 degrees, the higher figure signifying lightness.

Mismatch between the available crude oil and the type of refinery leads to bottlenecks, not to mention the total capacity of refineries falling behind the aggregate amount of crude available worldwide. There is nothing that Opec members can do about this.

Following the oil price explosion in 1973-74 - caused by the Arabs reducing their petroleum shipments to the west during and after the October 1973 Arab-Israeli war - Opec acquired the power to set prices and make them stick. But this did not last.

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