Wednesday, March 25, 1998

We should have known cheap gas wouldn't last

Just as motorists are getting used to falling gas prices - as low as 75 cents for regular in a few places - the oil-producing nations are acting to send prices back up.

In a rare display of unity, Saudi Arabia, Mexico and Venezuela said they would cut production. They were quickly joined by Iran, Kuwait and the United Arab Emirates. Other producers may follow suit.

The idea is to cut world production by 2 million barrels a day to reverse a price slide that had reached a 10-year low, from $23 a barrel last fall to just over $12 on one exchange.

In the 1970s, between apocalyptic warnings about the world's oil supply running out and Arab oil embargoes, it seemed that Americans could think about little else than the price and availability of oil and gasoline. Remember a bushel of wheat for a barrel of oil?

Now, the general public doesn't seem to think about oil at all, except when an unnatural fall in pump prices attracts their attention. And this drop was unnatural, due to an unusual confluence of events: the El Nino-warmed winter, a drop in Asian demand and the prospect of Iraqi oil returning to the world market.

Cartels are only as strong as their weakest link, and production cutbacks last only as long as it takes rising prices to make it worthwhile for the oil nations to cheat on their production quotas.

The summer driving season won't be as cheap as it might have been, but it could still be a relative bargain.