Oil Prices May Cause Recession

Clinton Says Fuel Costs Could Undermine Economic Boom Saudi Arabia Pledges Help, But Iraq Says Prices Are Stable Crude Futures Topped Ten-Year High Wednesday

BAGHDAD and NEW YORK, Sept. 7, 2000

(CBS) As President Clinton warned that fuel prices could knock the U.S. economy into a recession, leaders of two oil-producing nations gave mixed signals Thursday on what consumers can expect when OPEC meets this weekend.

The president met with one of those leaders, Saudi Arabia's Crown Prince Abdullah, on the fringes of the U.N. Millennium Summit.

"I told him I was very concerned that the price of oil is too high, not just for America but for the world," Mr. Clinton said.

The 11 member states of OPECwhich stands for Organization of Petroleum Exporting Countriesare expected to approve a 500,000-barrel-a-day increase in oil production when they meet in Vienna on Sunday.

But American experts say that won't be enough to bring prices down, and, with natural gas and heating oil inventories low, are predicting a costly winter for consumers.

Oil prices have more than tripled since hitting a 12-year low of less than $11 a barrel in December 1998, before OPEC slashed production to force prices higher.

On Wednesday in London, prices of Brent crude for delivery in October hit a 10-year high of $33.50 a barrel. On the New York Mercantile Exchange, oil for delivery in October surpassed the previous 10-year high of $34.37, reaching $34.45 before declining to $34.31.

The president said he made the case that an economic downturn would hurt every country.

"There were other reasons why it's not in our interest, and he agreed with that, he's been very strong about that," Mr. Clinton said of his talk with Abdullah.

The president said he told Abdullah "that if it was to cause a recession in any part of the world, that would hurt the oil-producing countries."

High gas prices were a major contributor to inflation in the U.S. this summer, and inflation can lead to recession. High fuel prices can be especially harmful because almost every business uses fuel.

National Security Council spokesman P.J. Crowley declined to characterize the crown prince's response to Mr. Clinton.

Abdullah said earlier this week that his oil-rich country is working to stabilize world oil prices but consumer countries must contribute to this effort by reducing fuel taxes.

About OPEC OPEC was formed by five oil-producing states in Sept. 1960. It now has 11 members:

Algeria Indonesia Iran Iraq Kuwait Libya Nigeria Quatar Saudi Arabia United Arab Emirates Venezuela (Source: OPEC)

"Saudi Arabia will continue to make every effort to ensure equilibrium in the oil markets and to stabilize prices," said Abdullah, whose country is the world's top exporter of oil. "This requires the cooperation of all producing countries, whether they are members or nonmembers of OPEC."

However, Iraq's Oil Minister Amer Mohammed Rashid urged OPEC members not to increase output, saying supplies are sufficient to meet world demand, the official Iraqi News Agency reported Thursday.

Rashid said vacillation in oil prices did not result from a supply crunch but from "speculation by investors in oil futuresand (partly) the psychological preparedness waged by the American administration with the aim of exerting pressure on the organization to increase production."

"The market is in a state of balance.All (market) fundamentals illustrate that supplies are sufficient to meet world demand," added Rashid. "Therefore, there is no need for OPEC countries to jack production."

Rashid, whose country now produces more than 3 million barrels a day, accused Saudi Arabia, the world's largest oil producer and exporter, of executing "American schemes" to glut markets and lower prices. Rashid said he would be leading the Iraqi delegation to the OPEC.

Iraq sits on the world's second largest oil reserves after those of Saudi Arabia. Though still under U.N. trade sanctions for invading Kuwait in 1990, Iraq is permitted to export unlimited quantities of oil. The world body monitors the exports and revenues to ensure they are used to alleviate impact of sanctions on ordinary Iraqis.

While pledging to work to stabilize oil prices, Saudi Arabia's Abdullah was critical of taxation by oil-consuming countries that also puts pressure on prices.

"These taxes, which bear heavily on consumers, should be reconsidered," he said.

OPEC claims taxes in some countries account as much as 70 percent of what consumers pay for oil.

OPEC raised production levels in March and in June. But it was still seen as the bad guy of the gas price crunch, prompting some lawmakers to call for sanctions against its member countries.

Copyright 2000 CBS Worldwide Inc

http://cbsnews.cbs.com/now/story/0,1597,231409-412,00.shtml

-- Martin Thompson (mthom1927@aol.com), September 07, 2000

Answers

I hate to admit it, but they are right about excessive taxes on oil products.

-- Wayward (wayward@webtv.net), September 07, 2000.