A new oil glut is upon us. Anything could happen. The only thing certain is that the United States, to the extent that it has any energy policy at all, will not have one appropriately responsive to events.
Prices are falling - people are even talking about the possibility of $5-a-barrel Dubai crude - and OPEC discipline is in shambles. The price of West Texas Intermediate has skidded more than $2 a barrel in the past five weeks. The OPEC bloc was producing at a rate of 20.6 million barrels a day in September, nearly 3 million barrels in excess of the official OPEC quota.Cartel members are cheating indiscriminately. Saudi Arabia alone is now pumping 5.7 million barrels a day, up from 3.7 million barrels a month ago. If it puts its foot to the floor, Saudi Arabia could go to 7.5 million, and then you're talking about oil so cheap they'd give it away with sets of dishes. The Saudis are clearly fed up with cutting their production every time one of the smaller producers cheats on its quota.
To understand the degree of glut we're talking about, oil is now cheaper in real, inflation-adjusted terms than it was before prices exploded in the early '70s. By pre-embargo standards, we're talking distress prices.
The easy thing to do is sit back, enjoy low prices, and pretend it's 1970 when policy assumed that oil would be cheap forever. It would seem a logical time to let Ford and General Motors build more gas guzzlers since they earn their highest profit margins on these models. This, of course, is exactly what the Reagan administration decided to do last week.
The prevalent assumption, if you don't live in the Oil Belt, is that there can be nothing bad about lower oil prices.
But if the price of Texas crude keeps falling, it's anybody guess how many new Texas banks and thrift institutions will be added to the government's insolvent list.
If the United States had a coherent energy policy, this would be the time to start talking about an oil-import fee. When oil prices are soft or declining, you can tax imported oil without excessive inflationary risks. It helps the oil belt by keeping domestic prices from collapsing. It promotes energy independence. It encourages a continuing process of energy conservation, which makes the nation less vulnerable during the next world oil shortage, less a hostage to OPEC the next time that organization finds itself disposed to raise prices.
Even if these are marginal advantages, even if you are reluctant to rob American consumers of lower oil prices, an oil-import fee is one of the quickest, most painless ways to reduce the federal deficit.