Worldwide supplies of oil have recovered to the point where not even an outbreak of hostilities in the Persian Gulf would justify another sharp increase in price, Energy Secretary James D. Watkins said yesterday.
Watkins, who is going to Saudi Arabia at the end of the week to discuss the oil supply situation, told a group of reporters he and other administration officials will be "jawboning" traders in an effort to break what he called "the self-fulfilling prophecy" that war in the desert will send energy prices through the roof.
Noting that other nations have replaced the 4.3 million barrels a day of oil that used to be shipped from Iraq and Kuwait, Watkins said it is projected that by March 1, one million barrels a day more will be available to world markets than when Iraq invaded Kuwait Aug. 2. Global oil consumption is about 64 million barrels a day.
After the invasion, oil prices shot up from less than $20 a barrel to nearly $40, but since have settled back to around $30 a barrel. Watkins and other administration officials have argued for months that the jump was caused by oil traders' speculation, not by a true shortage.
The Energy Department, concerned about the impact of high oil prices on the nation's struggling economy but bound by the administration's free-market philosophy, has resisted calls from Congress and from market analysts to sell substantial quantities of oil from the Strategic Petroleum Reserve in an effort to drive prices down. In effect, what Watkins called "jawboning" has constituted virtually the entire response of the administration to the oil crisis.
The price of a barrel of "light sweet" crude oil -- considered the best -- closed at $32.95 yesterday on the New York Mercantile Exchange. Many analysts have predicted that war in the gulf area would drive the price above $70, at least until the outcome is clear.
"There is no reason for prices to be up there" so high except for such concern, Watkins said.
Even if war comes, Watkins said, the fears are unjustified, because the United States and its allies have sufficient forces on the ground to protect the Saudi oil fields and adequate naval and air power to assure the continued shipment of Mideast oil through the Persian Gulf.
Iraq has the capacity to sabotage or damage some Saudi oil facilities, he said, but not for long enough to cause any significant disruption.
Watkins said a gulf war could cause shortages of some refined petroleum products, particularly jet fuel, but said those would only be "short-term" and could be handled by dipping into the ample U.S., German and Japanese oil reserves.
The energy secretary conceded he had made these same points publicly and repeatedly in the past few months and "we have had no impact" on the speculative forces that have driven up oil prices. But in an apparent reference to the president, he suggested: "There ought to be some other jawboning going on by others" that might have more effect.
He said the purpose of his trip to Saudi Arabia is "to share our views on the supply situation." He said he expected the Saudis to "come down a little" from the expanded 8.3 million barrels per day they have produced since the invasion of Kuwait, but praised their cooperation in helping fill the gap caused by Iraq's action.