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Jim Landers

OPEC countries set two values for oil

12:00 AM CST on Tuesday, November 20, 2007

By JIM LANDERS jlanders@dallasnews.com

RIYADH, Saudi Arabia –When it comes to paying for gasoline, what OPEC countries say and what they do are two different things.

Saudi Arabia's King Abdullah on Saturday brushed aside allegations that OPEC is a monopoly controlling the price of oil. The near-$100-a-barrel price from this year's spike has, in inflation-adjusted terms, "not reached its rate during the early 1980s," he pointed out.

While everyone else is paying more for gasoline, however, the king gave Saudi motorists a 30 percent discount two years ago. Saudi 91-octane fuel now sells for about 46 cents a gallon; premium, 95-octane gasoline goes for 61 cents.

Many of the cheapest gasoline prices in the world are at OPEC country service stations. Venezuelan drivers pay 16 cents a gallon.

Iranian President Mahmoud Adhmadinejad says "the real value of oil is much higher than the price changing hands," but he would not dare charge his own people $100 a barrel for oil. Iranians pay 41 cents a gallon for premium gasoline, a couple pennies per gallon less than Libyans.

In Nigeria, it's 52 cents a gallon. Indonesia, where premium retailed for $2.02 a gallon last year, has the highest gas prices in OPEC.

"Before they lowered the price, it was a little expensive," Saudi motorist Muhammad Abdullah said last week as a gas station attendant filled his banged-up, late-model Chevrolet Caprice. "Now it's very nice."

Subsidized gasoline is one way OPEC governments share the wealth with their citizens. Despite raking in an estimated $688 billion from oil exports this year, most of the 571 million people in OPEC countries live on less than $9 a day. Per-capita income across OPEC last year averaged $3,128.

OPEC countries also say cheap fuel is a comparative trade advantage. In the same way China can say it has a trade advantage from cheap labor, Saudi Arabia has argued to the World Trade Organization that it should be able to offer cheap natural gas as both a fuel and a feedstock.

The Saudis charge local petrochemical manufacturers 75 cents per thousand cubic feet, compared with the current U.S. retail price of $8.35.

OPEC's gasoline bonanza for motorists has become a headache for their governments, however. This cheap gas has fed a rapid increase in demand.

Gasoline usage in Saudi Arabia is growing at more than 5 percent a year, and last year it averaged 15.5 million gallons a day. (Texas, by the way, has about the same number of people as Saudi Arabia – 23 million – but consumes twice as much gasoline.)

About a fifth of the oil produced in OPEC's 13 member nations now is consumed at home, and several OPEC countries have to import gasoline because they don't have adequate refineries to process enough to supply the locals.

In Iran, gasoline sales last year averaged 19.4 million gallons a day. About 40 percent of that had to be imported, and at world prices. The expensive system of subsidies needed to keep people happy broke down this summer when Iran imposed gasoline rationing, sparking riots across the country.

The International Monetary Fund has tried to work with OPEC members Angola and Iraq to eliminate subsidies for domestic fuels because they are a big drain on government funds. With export revenues soaring, however, and China offering to finance construction of a new refinery in Angola, that country is losing interest in the IMF's advice.

Saudi Oil Minister Ali al-Naimi called these cheap gasoline prices "individual policy decisions by sovereign nations."

So which reflects what OPEC members believe a barrel of oil is worth – the local price, or the one charged the U.S. and others?

"It's not market pricing," Mr. al-Naimi admits, referring to the prices charged to OPEC country drivers, "but this is not what sets the world price for a barrel of oil."

No, OPEC helps take care of that.

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