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Bob Moon: Energy speculators could take it on the chin from a couple of major developments in the oil market.
China keeps the retail cost of gasoline and diesel artificially low with government subsidies, but today, it announced a stunning 18 percent price increase. Analysts say the move could cause a significant drop in demand from the world’s second-largest oil user. World oil prices dropped as much as $3 a barrel today.
And in Iraq, several Western oil companies are on the verge of returning to work there for the first time in 36 years. Exxon, Shell, Total and BP are reportedly close to deals with the Iraqi Oil Ministry.
In the short term, the deals would aim to rebuild Iraq’s oil industry, but as Marketplace’s Jeremy Hobson reports, Big Oil has the long-term in mind.
Jeremy Hobson: Right now, Iraq produces about 2 million barrels of oil per day out of a global total of more than 80 million barrels. The Iraqi Oil Ministry thinks Western technology can boost production by a half-million barrels a day, so the plan is to bring in these oil companies on short-term “service contracts.”
Bob Ebel is a senior advisor at the Center for Strategic and International Studies.
Bob Ebel: They’ll come in, expand production and go away. They’re gonna stick around though because they hope, well, “What access can we get? Do we have a leg up on the other companies?”
Hobson: A leg up or this is a foothold for them?
Ebel: And I’m sure they look at it that way.
That’s what worries James Paul, who directs the Global Policy Forum. Iraq has the world’s second largest known oil reserves and he says these contracts will likely lead to lucrative revenue-sharing agreements. Decisions like this, he says, should not be made while the U.S. has so much influence in Baghdad.
James Paul: We’re talking about a sovereign country or a country that wants to, you know, do business on its own and as long as the United States is occupying that country, it’s not a good thing.
Secretary of State Condoleeza Rice today denied any U.S. government involvement in the contracts and said increased oil production would be a good sign.
Bob Ebel says the difference would amount to less than 1 percent of global output.
Ebel: It’s not a step that’s gonna cause the oil price to drop dramatically. In fact, it’ll probably just keep it where it is.
In Washington, I’m Jeremy Hobson for Marketplace.
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