OPEC math: More biofuel = higher oil prices

Scott Jagow Jun 6, 2007

TEXT OF INTERVIEW

SCOTT JAGOW: As the G8 countries gather in Germany today, they’re getting a warning from the oil-producing countries. OPEC says if the U.S. and Europe insist on pushing biofuels as an alternative, there’s a good chance oil prices will go through the roof. President Bush is touting biofuels as a way to combat global warming and reduce dependence on oil, but there are concerns. Making fuel from corn and sugar uses land that could be growing food, for example. So, what do we make of OPEC’s comments? We asked Ed Crooks of the Financial Times in London.

ED CROOKS: I think that the way to think of it, you have to put yourselves into OPEC’s head. And what they see when they hear people talking in Europe and in the U.S. about developing more biofuels, then the OPEC countries worry, will we still have enough of a market for oil? How much oil will be demanded by these consuming countries in the future and what is the risk of there being a glut of oil on the market driving prices down?

JAGOW: Well it sounds like OPEC is sort of forcing the hand of the Western countries. They’re saying we’re not going to be as reliant on you anymore, we’re gonna go with this biofuel thing and OPEC’s saying OK if you do that, here’s the consequence.

CROOKS: Exactly. Exactly. That’s very much it. There is a game being played here between the producers and the consumers and what OPEC says is we want a dialogue between us — between the U.S., Europe, Japan, India, China on the one hand and the OPEC producing countries on the other — as long as we talk then we can kind of both understand each other’s needs and we can get to a nice harmonious stable kind of arrangement where demand will be stable and predictable and prices will be stable and predictable too. But if we don’t get that dialogue then things could turn ugly.

JAGOW: Has there been any reaction to OPEC’s threat here?

CROOKS: Caertainly yeah, behind the scenes there’s been quite a bit of muttering about it. I suppose the one thing we’re not going to have is to see the Europeans and the Americans immediately starting to say ‘oh we better back off the biofuels, in that case, if OPEC doesn’t like it, we’re not gonna do it.’

JAGOW: OK Ed Crooks from the Financial Times in London, thank you.

CROOKS: Thank you very much.

JAGOW: Oil’s trading at $65.50 a barrel this morning.

TEXT OF INTERVIEW

SCOTT JAGOW: As the G8 countries gather in Germany today, they’re getting a warning from the oil-producing countries. OPEC says if the U.S. and Europe insist on pushing biofuels as an alternative, there’s a good chance oil prices will go through the roof. President Bush is touting biofuels as a way to combat global warming and reduce dependence on oil, but there are concerns. Making fuel from corn and sugar uses land that could be growing food, for example. So, what do we make of OPEC’s comments? We asked Ed Crooks of the Financial Times in London.

ED CROOKS: I think that the way to think of it, you have to put yourselves into OPEC’s head. And what they see when they hear people talking in Europe and in the U.S. about developing more biofuels, then the OPEC countries worry, will we still have enough of a market for oil? How much oil will be demanded by these consuming countries in the future and what is the risk of there being a glut of oil on the market driving prices down?

JAGOW: Well it sounds like OPEC is sort of forcing the hand of the Western countries. They’re saying we’re not going to be as reliant on you anymore, we’re gonna go with this biofuel thing and OPEC’s saying OK if you do that, here’s the consequence.

CROOKS: Exactly. Exactly. That’s very much it. There is a game being played here between the producers and the consumers and what OPEC says is we want a dialogue between us — between the U.S., Europe, Japan, India, China on the one hand and the OPEC producing countries on the other — as long as we talk then we can kind of both understand each other’s needs and we can get to a nice harmonious stable kind of arrangement where demand will be stable and predictable and prices will be stable and predictable too. But if we don’t get that dialogue then things could turn ugly.

JAGOW: Has there been any reaction to OPEC’s threat here?

CROOKS: Caertainly yeah, behind the scenes there’s been quite a bit of muttering about it. I suppose the one thing we’re not going to have is to see the Europeans and the Americans immediately starting to say ‘oh we better back off the biofuels, in that case, if OPEC doesn’t like it, we’re not gonna do it.’

JAGOW: OK Ed Crooks from the Financial Times in London, thank you.

CROOKS: Thank you very much.

JAGOW: Oil’s trading at $65.50 a barrel this morning.

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