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While that statement heartened U.S. oil drillers, along came a more dire forecast by Mani Said al-Oteiba, the Oil Minister of the United Arab Emirates. He declared OPEC--the Organization of Petroleum Exporting Countries--to be in disarray and predicted that prices could fall as low as $5 per bbl. His remarks helped send the price of West Texas Intermediate, a benchmark crude, tumbling to $9.75 per bbl. Tuesday on the New York Mercantile Exchange.
Oil prices whipsawed upward later the same day when Vice President George Bush, a former Texas oilman, seemed to imply that he would try to persuade the Saudis to throttle back their output. At a press conference Bush gave as he prepared to leave on a trip to the Middle East, the Vice President said, "My plea will be for stability of the marketplace." But a senior White House aide quickly denied that the Administration would depart from its free-market philosophy, "even if it means the oil price drops to $1." The seemingly conflicting comments generated jitters in the oil-trading pit of the New York Merc, where the price of West Texas Intermediate edged back up to $12.74 at week's end.
Even the passing idea that the Administration might want to ask OPEC to withhold oil from the market struck many experts as a colossal irony. Said Robert Hormats, an investment banker with New York City's Goldman Sachs and a former Assistant Secretary of State: "Talk about a world being upside down. Only a few years ago, we were asking them to raise production as much as possible."
The U.S. has come a long way from the 1970s, when it suffered through two oil shocks. The first came in 1973, when the Arabs embargoed oil in retaliation for U.S. support of Israel; the second in 1979, after the overthrow of the Shah of Iran cut off that country's supply. The shortages, even though they were never greater than 10%, enabled the oil producers to crank prices ever higher. OPEC became a nasty acronym in the West, the favorite villain of cartoonists and columnists.
U.S. consumers responded bitterly, some of them by hoarding fuel and getting into fights at filling stations. Eventually an effort to conserve took hold. At one point, President Carter declared conservation "the moral equivalent of war." Consumers turned off unnecessary lights, rode bicycles, dialed thermostats down to 65 degrees F and drove 55 m.p.h. instead of 70 m.p.h. Meanwhile, rising prices made it economical for utility companies to convert to coal-fired and nuclear-powered plants and for other businesses to install new energy-efficient equipment. Some homeowners even began heating their houses and pools with solar panels. Result: the U.S. reduced its reliance on oil imports from 8.6 million bbl. per day in 1977 to 4.3 million bbl. last year. Even better, much of that supply came from such newly expanded sources as Mexico and Britain rather than the volatile Persian Gulf countries.