Hearing: World Crude Oil Pricing
Statement
Hearing: World Crude Oil Pricing
Mr. Chairman, thank you for convening today's hearing on global oil
markets. This Committee, through the Energy Policy Act and the GAS Act,
has dedicated a lot of time and energy to removing the regulatory
barriers to increased oil supply and to encouraging greater efficiencies
in the use of energy and limiting its consumption. While we have worked
diligently on domestic problems within the realm of our jurisdiction, I
hope that today's witnesses will enlighten us as to the impact of
international events on the supply of and demand for oil as a commodity.
With skyrocketing demand in China and India, a bubbling insurgency in
Nigeria, continuing instability in Iraq, potential war with Iran, and
a growing trend of nationalization and seizure of private companies'
operations in South America, it is no wonder that the price of a
barrel of oil is nearly $75 -- a nearly 25% increase from a year ago.
Disruptions in South America have received the least amount of
attention in the popular press. Just last month, Venezuelan strongman
Hugo Chavez cancelled contracts with foreign oil companies, demanding
that the government oil company be given majority ownership and
operational charge of oil fields. Potential new contracts are offering
little to no profit. Companies that refused to bolt the country
outright have found their operations seized. Mr. Chavez has a copycat
in Bolivia's new President, Evo Morales, who nationalized his energy
sector this past Monday.
These moves will prove detrimental to both the Bolivian and Venezuelan
economies, and to the world economy. Venezuela is already suffering
from insufficient investment in energy production. Rampant corruption,
and the use of energy profits to prop up socialist rule at home and
insurgency abroad, have left Venezuela's oil fields depleting at a rate
of 25% a year.
However, in the end, none of these global disruptions perfectly explain
the price of a barrel of oil. Only the market concepts of insufficient
supply and growing demand can do that. The low cost of oil in the
nineties discouraged exploration for new sources while encouraging
greater consumption. That is why incidents in oil-producing countries,
as well as freakish weather like Hurricane Katrina, can drive up prices
so sharply.
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