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Would oil prices drop under Kerry?

Oil prices may cost as much as 10 percent less next year if U.S. Democratic challenger John Kerry defeats President Bush in Tuesday's election, some energy analysts said Monday.
/ Source: Reuters

Oil prices may cost as much as 10 percent less next year if U.S. Democratic challenger John Kerry defeats President Bush in Tuesday's election, some energy analysts said Monday.

Kerry is seen as more likely to use the U.S. Strategic Petroleum Reserve (SPR) to cool prices and is expected to have a less aggressive policy in the Middle East, lowering the risk of supply disruptions from the energy-rich region.

"Under a Kerry administration we'd likely have a much more interventionist SPR policy," said Jamal Qureshi, market analyst at PFC Energy in Washington. "And when you look out a bit further, Bush is more likely to be aggressive in the Middle East, particularly in Iran," he added.

Oil prices have jumped to record highs this year over $55 a barrel on concerns over tight supplies, unreliable shipments from war-torn Iraq and growing demand from countries like China and India.

Monday, a day ahead of the election, oil prices recoiled more than two dollars to dip below $50.

PFC predicts an average oil price of $43 a barrel in 2005 if Kerry wins, compared with $48 if Bush is reelected .

The high energy costs have sparked some concerns about their impact on the global economy, with a U.S. Federal Reserve Board governor last week calling the oil price increase a shock to the U.S. economic system.

Despite the surging costs, the Bush administration has been reluctant to release oil from the nation's stockpile.

"This administration doesn't want to be accused of playing politics with the crude reserve," said Aaron Brady, analyst at Cambridge Energy Research Associates.

Former President Clinton, a Democrat, in 2000 ordered a sale from the petroleum reserve that brought prices down about 12 percent into the low-$30 per barrel range.

Sen. John Kerry has criticized Bush's tight-fisted policy and said Bush should at least stop filling the SPR to allow for more oil on the open market. The reserve currently holds about 670 million barrels, with a target of 700 million.

"A Bush status quo results in somewhat higher oil prices both in the short and the longer term, in my view," said Tim Evans, senior analyst at IFR-Pegasus. "In the short run, it means more oil drained from the market."

Some analysts have added that oil prices in the longer term could trend higher if Bush is reelected because of tensions with Iran, an OPEC-member nation that Bush has named part of a global "axis of evil."

"There's an increased likelihood of some material confrontation in Iran with a Bush presidency," said PFC's Qureshi. "But that would be a bit beyond our price forecast."

Iran is facing international pressure due to concerns over its nuclear ambitions.

Both Bush and Kerry have said they hope to ease U.S. dependence on foreign oil imports, but they differ on how, with Bush focusing on increasing crude production at home and Kerry focusing on slowing demand through development of alternative energy sources.