The White House, backing away from remarks Tuesday by Vice President Bush, reaffirmed yesterday that the administration does not intend to interfere with the movement of world oil prices.
White House spokesman Larry Speakes said yesterday the administration believes that market forces should determine the price of oil. "There has been no change in administration policy or viewpoint on the decline in oil prices," Speakes said.
"While we are concerned with the effects of falling prices on oil-producing sectors of the U.S. economy, the net effect for American consumers and the American economy will be positive," Speakes said at a press briefing in Santa Barbara, Calif., where President Reagan is vacationing.
Bush told a news conference Tuesday that he would make a plea for stability in oil prices when he met with leaders of Saudi Arabia this weekend. Bush, a former Texas congressman and former oil industry entrepreneur, also expressed concern Tuesday about the impact of plummeting oil prices on the U.S. energy industry, saying its health was vital to national security.
On the basis of Bush's remarks, oil prices jumped sharply higher Tuesday on commodities markets. Yesterday, after Speakes spoke to reporters, futures prices fell again by nearly $1 a barrel, closing in New York at $11.52.
In another development, administration officials said a high-level task force has been established to look at the national security implications of plunging oil prices. Among the questions being considered is whether the government should buy domestic oil, perhaps at above-market prices, for the 500 million-barrel Strategic Petroleum Reserve, both as a hedge against market disruptions and as a mechanism to prop up the sagging domestic industry.
The task force, including representatives from the National Security Council and the Energy and Interior departments, was inspired by concerns that the price war could put a significant portion of the domestic industry permanently out of production and force the United States into greater reliance on imported oil.
"Stripper wells [high-cost, low-volume wells] and marginal wells become uneconomical at current production prices. They'll be plugged and it will take astronomical oil prices to reopen them," said one official. "The concern is that we will reduce our base-line capacity, and it's hard to bring that back on line."
Using the Strategic Petroleum Reserve as a prop for U.S. production, as some oil-state supporters have suggested, presents obstacles, however. By law, most purchases for the reserve have been made from Mexico, as a way of bolstering that country's oil revenues -- a key source of dollars for Mexico's debt-laden economy.
Even if the oil could be purchased from U.S. producers instead, the government might have to pay higher-than-market rates to provide any significant relief for the industry. This would be, in effect, a price-support program for the oil industry, similar to the farm commodity programs that the administration has tried to cut or eliminate.
The Bush-Speakes sequence of statements confused the oil market. "People felt yesterday Tuesday and early this morning that the administration was trying officially to voice concern about lower prices," said Peter Beutel, an oil trader with Rudolf Wolff Futures Inc., referring to Bush's remarks and similar statements by Energy Secretary John S. Herrington. "Now it puts them in a position of saying, 'Yes, we're in favor of helping out the oil patch, but yes, we're in favor of the consumers.' They've left us confused," Beutel said yesterday.
Reports of Bush's remarks caused repercussions elsewhere. Saudi Arabia's King Fahd reacted by calling in the U.S. ambassador Tuesday to ask for an explanation of the American position, a U.S. official said yesterday.
Speakes stressed yesterday that while Bush's remarks may have led to some misunderstanding, there has been no change in policy. "When the vice president meets with King Fahd in Saudi Arabia this Sunday, he will emphasize the U.S. viewpoint that market forces should establish world oil price levels," Speakes said.
U.S. officials, in their review of the impact of cheaper oil, are studying government revenue programs that are sensitive to the oil market. Interior Department officials say they are concerned about the impact on the administration's aggressive offshore oil-leasing program, which has struggled in a soft oil market for more than five years.
The department has scheduled a lease sale in the Gulf of Mexico this month, and is preparing for sales off the California coast next year. "Industry still says it's interested, but we don't expect the bids to be as high," said an Interior spokesman.
Meanwhile, some oil firms have alerted the department that oil prices may force them to abandon already leased lands rather than meet federal requirements that the lease be developed within a specified time.
"The lease is only good for five or 10 years," said an Interior Department official. "We're getting requests from people to give them more leeway. They want to know if Interior will grant them an extension on their lease."