Sweet & Sour: Petrol blended with politics makes for a big stink

When I was a little girl, I used to love the smell of gasoline whenever we stopped to fill up the car. These days I think it stinks. Why? Because there is too much politics involved and I can't figure it all out.

Consider this, the US driving season is upon us and yet refineries have not been able to stock up enough of the transport fuel to make sure there are no shortages as the Americans prepare to get into their cars and take to the roads in an annual population displacement exercise.

This year, there will be the added strain of tighter gasoline specifications in some US states that will make it harder for refineries to meet demand in various parts of the country. Expect bottlenecks and a lot of irate motorists.

But here's the most baffling thing of all. Sure you can blame the Saudi Arabians for your energy woes. As the biggest oil producing nation on earth, they are after all a huge target. But it is not so simple. It now appears that the Saudis are saying one thing in public, appearing to do another and yet promising something completely different to their biggest customer the US, erstwhile strong ally but now lukewarm friend. Or is it?

Robert Woodward, half of the famous pair that blew open the Watergate scandal, has now written a book that some predict might complicate George W. Bush's re-election plans. He alleges in his new book Plan of Attack that the Saudi Arabian ambassador to Washington, Prince Bandar bin Sultan, promised Bush that the Saudis would bring down oil prices before the presidential election in November. Woodward did not say when the pledge was given but the news is out and the debate is only beginning. Did this administration and its neo-conservative and pro-Israeli policymakers make a deal with the same Saudi Arabia that they have done their darndest to demonise since 9/11? It stinks all right.

Unusually for the Saudis, the response was prompt. A Saudi Arabian official repeated the official Saudi line. The kingdom wants prices to remain within Opec's agreed $22 to $28 a barrel price band and would do anything to ensure that they return to the band levels. This has nothing to do with politics and nothing to do with the election, say the Saudis.

What makes this whole saga harder to read is that fact that Saudi Arabia has fully supported within Opec cuts in production that have coincided with oil prices far higher than the so-called price band, the latest such cut came into effect April 1.

But according to Woodward, the Saudi ambassador has given a pledge that although prices were high at present — they touched their highest in 13 years on Monday — the kingdom would gradually ramp up production and bring prices down over the summer as the election campaign enters its final lap. There goes the Saudi budget surplus.

But it is good for Bush and good for the American motorist, who after all doesn't really care where the oil is coming from so long as he/she doesn't have to pay through the nose for it. And with gasoline prices hitting record highs in recent weeks, you certainly don't want your people voting with their gas pedals.

If oil was not an election issue before, and it was, it certainly is now and Bush will have to do a lot of explaining to wiggle out of this one. The Democrats have shown some sign of life and have demanded that Bush explain the understanding reached with the Saudis. Time for another television appearance for Condoleezza I think.

I wish somebody would explain to me though why this whole brouhaha blew up in the first place. Saudi Arabia is among the three biggest exporters of crude oil to the US. It has been for long and I cannot recall a single moment in recent post-1970s history when the Saudis have tried to withhold oil from the US.

On the contrary. The Opec kingpin has done everything in its power to make sure that the price at which it sells crude oil to the American market is more competitive than the oil it sells say to Asia or to Europe, a smallish market for the Saudis. I am told that the Saudis virtually subsidize the shipping costs to the US in order to make sure they retain their spot as the leading supplier to American refineries.

Even the pricing differential to the US has been kept at levels that make it more economical say for the Americans to buy Saudi crude oil than China, where demand growth is far higher.

Adding to the mystery is the fact that the kingdom has for months professed to want prices nearer $25/bbl but has pursued, at least publicly, a policy that has helped to keep oil prices nearer $40 a barrel. But while putting their signature to Opec deals to slash oil supply, the Saudis, and to be fair others within Opec, have not really made any significant cut in their oil sales. Go figure.

- The author is Middle East editor of Platts, energy information division of the McGraw-Hill Companies. The opinions in this column reflect those of the author and not of Platts