Overreacting to oil prices

WASHINGTON -- There's something about rising oil prices that turns otherwise sensible people into fools. And in this election year, the national oil madness is becoming positively dangerous.

Americans seem unable to view oil simply as a commodity -- and a cheap one at that. Even in the current market a gallon of gasoline still costs far less than a gallon of bottled water. But when the price of this particular commodity goes up, politicians lose their minds.

Perhaps it's a lingering effect of the traumatic 1970s, when the OPEC cartel symbolized a world suddenly out of America's control. Perhaps it's a continuing reaction to the Carter presidency, which we remember for gas lines, inflation and the ''misery index.''

Whatever the reason, oil craziness seems to have afflicted politicians in both parties during this primary season-and it could get worse if gas prices go far higher this summer, as some analysts predict.

These past few weeks, with oil prices at more than $30 a barrel, we've had the embarrassing spectacle of Energy Secretary Bill Richardson wandering the Persian Gulf pleading with princes and potentates to raise their oil production -- please, oh, please! -- -and thereby lower gas prices.

It's hard to know what's more unseemly -- Richardson's groveling or the hauteur of our Kuwaiti and Saudi ''friends'' -- who wouldn't have two rivals to rub together if the United States hadn't rescued them from the Iraqi army back in 1991.

What makes Richardson's globetrotting especially dubious is that he's an undeclared candidate for vice president. The energy secretary is a charming, garrulous, likable fellow, and his yearning to be Al Gore's running mate is one of Washington's worst-kept secrets. That adds an unfortunate political twist to his crusade for cheaper oil.

Oil industry executives got a glimpse of Richardson's campaign when he spoke at a conference in Europe early last month. The energy secretary confided to the group that this was a primary year, and that he certainly wanted his candidate to win-but that this wouldn't affect U.S. energy policy decisions. Yeah, right! was the general audience reaction.

Richardson went on to make a statement some found preposterous: ''Ten dollars a barrel is too low. Thirty dollars a barrel is too high. I want the free market to determine prices,'' is how one member of the audience remembers it. The oil execs were dumbfounded. How could someone talk in the same breath about a free market and prices that were ''too high'' or ''too low''?

Richardson later took his Hat-in-Hand Express to Kuwait and Saudi Arabia. He got inconclusive answers in both capitals, where officials concluded that his mission was entirely political. The American official they take seriously, according to one adviser to the Saudis, is Alan Greenspan.

The problem with Richardson's political cajolery is that it caters to OPEC's delusion that it can fix prices over the long run. The lesson of the 1970s was that oil really is a commodity -- one that's in fairly plentiful supply. Short-term adjustments are always rocky, but if market forces are allowed to work, the spikes in price will inevitably be followed by declines. But Richardson, much like the OPEC cartel, was treating oil as a political commodity.

''Every price has its consequences,'' explains Vahan Zanoyan, chief executive of the Petroleum Finance Co., a Washington consulting firm. When the OPEC cartel's prices surge up, they set in motion counteracting forces -- from non-OPEC producers, who raise production to cash in; from consumers, who reduce demand; and from the oil companies, which invest in new fields that become profitable at the higher price levels.

The Saudis, for their own reasons, have been raising production-up from the cutback level of 7.4 million barrels per day to the normal level of about 8 million barrels. Some analysts think they began boosting output back in December, long before Richardson's road show. The reason is that the Saudis know, from experience, that they'll suffer most from the sharp fall in prices that will inevitably follow an artificial surge.

The Republican version of energy madness has been a call to release the Strategic Petroleum Reserve. George W. Bush said back in December that tapping the reserve was ''an option we should consider'' -- drawing fire from then-candidate Steve Forbes, who seemed to want to start pumping oil out of the Louisiana salt domes that very minute.

What kind of free marketers are these Republicans? They would take an oil reserve that has been acquired and maintained at great cost -- to provide a strategic buffer against a foreign oil embargo or other supply interruption -- and dump it on the market to suppress a short-term spike in prices. It's a seriously bad idea, and also a sign of the times.