At IMF, they're talking petroleum, not poverty
WASHINGTON - While all the official speakers from the International Monetary Fund and the World Bank were talking about poverty in Africa and the Third World, and about a debt relief program for 18 of the world's poorest countries, the only watercooler talk is about one thing alone: the price of oil.
When a gallon of gas in the U.S. costs $3 and private car travel - the symbol of American freedom - is in danger, nothing else matters. And the world always toes the line with the sheriff's interests.
As a result, news reports on approaching hurricane Rita are divided in two. They start with coverage of the likely cruel fate that awaits the approximately one million residents of Texas evacuating their homes. But they always come back to the real danger, close to the American heart: Rita's impact on the price of gasoline, which could skyrocket to $4 or even $5 a gallon.
Sure enough, OPEC announced Tuesday a 2-million-barrel-a-day increase in production but the price of oil stayed high at $67-$68 a barrel. Rita strengthened to a Category 5 storm - the force of predecessor Katrina which flooded New Orleans and destroyed oil rigs up and down the Gulf of Mexico.
And indeed, Texas drilling sites and refineries responsible for 25 percent of local oil production are in the storm's predicted path. Even now, almost a month after Katrina unleashed its wrath, 40 percent of Gulf-based oil and gas production is still incapacitated.
However, the U.S. provides only 13 percent of its consumption domestically, so it will always remain dependent on external oil production sources.
Global oil prices have been climbing for several years. In 1994, the price of oil was $16 a barrel; in 2002, oil cost $25 a barrel; in 2004 it reached $40, and now it has reached $67 a barrel.
The central reason for this is the rapid economic growth in China and India in the past decade, growth that consumes huge quantities of oil. China will keep growing at 8.2 percent next year along with a sharp increase in the number of private vehicles and India will hit 6.3 percent annual growth - which means continued pressure on oil prices, because even if oil producers pump more, the number of refineries in the world cannot meet the increase in demand.
In addition, Russian oil production is lower than its potential, and Iraqi oil production is below normal. And if that isn't enough, only recently Iran threatened to use oil as a weapon if the West - namely, the U.S. - tried to prevent it from continuing to develop atomic weapons. Compared to these long-term causes, the storms in the Gulf of Mexico are temporary, short term.
Despite the crisis atmosphere, $67 a barrel is not a record. The record was set in the 1980 crisis, when oil hit $90 a barrel in real terms.
The IMF says that as a rule, a $10 increase in the price of oil cuts growth the following year by 0.6 percent. But this time is different. The rise in oil prices is driven by a rise in global demand, in other words from economic growth in developing countries, and not from a drop in supply.
So the IMF didn't reduce its global growth projections for next year, leaving its forecast at 4.3 percent, the same as for 2005.
But just like any other economic projections, the experts here in Washington are divided. Some say the price will keep going up, breezing by $70 and possibly hitting $100. In contrast, some
economists aver that we will see prices begin to drop soon, as U.S. and European consumers begin to conserve gasoline, OPEC increases production and refineries increase output.
And just a trip down memory lane. A year ago, when oil was threatening to breach $50 a barrel at the end of September, then finance minister Benjamin Netanyahu said there was nothing to worry about. "The price will soon return to $40 a barrel." But the oil market didn't listen and oil galloped northward.