Saudi Oil: A Crude Awakening on Supply?

The Saudis say they can ramp up production to 12.5 million barrels a day. But a field-by-field breakdown obtained by BusinessWeek shows that's not likely

by Steve LeVine

Saudi Arabia's ability to calm panicky oil markets has been waning for years. With oil prices doubling since last summer, to more than $140 a barrel, Saudi King Abdullah on June 22 convened an extraordinary meeting (BusinessWeek.com, 6/22/08) of OPEC members, international oil industry CEOs, and foreign leaders in an effort to calm the markets. The kingdom's message was clear: Saudi fields can pump oil to market quickly, if demand warrants.

However, it appears that for at least the next five years, and possibly longer, the Saudis are likely to produce less crude than promised, according to fresh data on the kingdom's oil fields obtained July 9 by BusinessWeek. Saudi officials have said they would increase production capacity to 12.5 million barrels a day next year, from the current 10 million barrels a day, and could even ramp up to as much as 15 million barrels a day if the market demanded it. As proof to a skeptical audience, the normally highly secretive Saudis were a bit more more open, escorting journalists on a visit to their new Al Khurais field (BusinessWeek.com, 6/23/08), east of Riyadh, and disclosing some field data.

Oil companies want in

But the detailed document, obtained from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day, according to the data. BusinessWeek obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013. It was provided by an oil industry executive who said he had confirmed it with a ranking Saudi energy official who has access to the field data. The executive, who has proven reliable over several years of reporting interaction, provided the data on condition of anonymity to protect his access to the kingdom and the identity of the inside contact who confirmed the information.

Saudi Aramco officials in the kingdom could not be reached for comment on July 9.

Three industry analysts in the U.S. said the document's overall conclusion—that the Saudis cannot sustain higher than 12 million barrels a day maximum production for the next few years—appeared to be reasonable. "My view is that when they finish their expansion program they are unlikely to be above 12" million barrels per day, says Roger Diwan, a Middle East energy expert with PFC Energy, a consultancy in Washington, D.C. Lawrence Goldstein, an analyst with the Energy Policy Research Foundation, an industry-funded research group, said that uncertainty about Saudi production remains a problem for the market. "The only ones who know could be the Saudis," Goldstein says, "and they might not know because they haven't tested the deliverability system in as much as a decade."

A principal reason for the dramatic surge in world oil prices has been a tight balance of global supply and demand, combined with a lack of spare capacity to produce more crude in a pinch. So that what previously might be considered a barely consequential guerrilla attack in oil-rich Nigeria, or an empty Iranian threat to close the strategic Strait of Hormuz, results in a far more dramatic oil market reaction than ever before.

Once again Saudi Arabia has emerged as the central energy player, the only oil producer on the planet seen as having the spare capacity to rapidly boost crude exports. The kingdom also has close ties to the West, and until 1980 the precursors of Exxon (XOM), Chevron (CVX), and Mobil were partners with the Saudi state oil company. Now most of the major oil giants are hoping to get back in, and one way they have suggested is by helping the Saudis maintain the fields, an overture that has been rejected.

"A Bunch of Empty Boasts"

On oil matters, the kingdom's credibility has been clouded by intense secrecy. The Saudis, for instance, refuse, unlike Russia, Venezuela, and Norway, to release detailed assessments of their oil reserves, which has made many skeptical. "They are just a bunch of empty boasts," Matthew Simmons, chairman of Houston investment bank Simmons & Co. International, says of the kingdom's recent promises of 12.5 million barrels a day. He is also skeptical of Saudi reserve estimates.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom's workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. "That's why Khurais is so important—to make up for that decrease," said the oil industry executive who released the data. He was referring to a supergiant field that is to come online later this year and produce an estimated 500,000 barrels a day of crude. In last month's gathering in Saudi Arabia, officials of the kingdom told journalists that Ghawar had produced just under 5 million barrels a day from 1993 through 2007.

Mainly the data show flat production; apart from the addition of Khurais and a heavy oil field called Manifa, no increases appear in any of the fields during the next five years. Production at Manifa is to begin in 2011 with 125,000 barrels a day, according to the data, and rise rapidly to 900,000 barrels a day two years later. Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Still, despite its enormous reserves and bullish statements, Saudi Arabia appears likely to fall well short of the daily production it has targeted in the near term.

WILLIAMS: Scapegoating speculators

Despite Congress' periodic hauling of weak-kneed oil executives before their committees to charge them with collusion and price-gouging, subsequent federal investigations turn up no evidence to support the charges.

Right now oil company executives are getting a bit of a respite as Congress has turned its attention to crude oil speculators, blaming them for high oil prices and calling for tighter control over commodity futures trading.

Let's look at the futures market and for simplicity use corn futures discussed in my May 28 column titled "Futures market." While corn is different from oil, both obey the laws of supply and demand, just as humans are very different from bricks but both obey the laws of gravity.

Say that today's price of corn is $7 a bushel. I have a hunch that because of Midwest flooding, higher demand due to droughts and war in other parts of the world, that in May 2009 corn will sell for $12 a bushel. I stand to make a lot of money by buying corn now for $7 a bushel, holding it, and in May 2009 selling it for $12 a bushel. If many speculators share my hunch and buy more corn now, today's price, sometimes called the spot price, is going to rise let's say to $10 a bushel.

Higher prices for corn, and everything made from corn, might give rise to consumer complaints. While Congress can't stop the Midwest rain, droughts and wars in far off places, it can scapegoat speculators. Let's say Congress outlaws the corn futures market, or makes futures trading more costly. Doing so will definitely lower the spot price of corn. The price might return to $7 a bushel, making corn consumption once again "affordable." You might exclaim, "Isn't Congress wonderful?" But what about May 2009?

Suppose the Midwest floods significantly affect corn production; there's drought and war in far-off places raising the demand for corn exports. What do you predict will be the availability and prices of corn in May 2009 after Congress has outlawed, or made futures trading more difficult? If you answer less corn and much higher prices, go to the head of the class.

By outlawing or impeding futures trading in corn, Congress encouraged Americans to ignore the future. Had Congress not interfered, people would use less corn now, making more available in May 2009. Thus, one of very valuable functions performed by the speculator is the allocation of resources over time. It makes sense to take the future into account when making consumption decisions today.

The futures market, by the way, is no bed of roses. My hunch about corn supply and demand conditions might be dead wrong. Its May 2009 price might be $3 a bushel and I would have to sell at a loss. Futures trading is risky business.

Congressional attacks on speculation do not alter the oil market's fundamental demand and supply conditions. The long-term price of oil would be lowered if Congress permitted exploration for the estimated billions upon billions of barrels of domestically available oil, not to mention the estimated trillion-plus barrels of shale oil in Wyoming, Colorado and Utah.

Some politicians pooh-pooh calls for drilling, saying it would take five or 10 years to recover the oil. I guarantee you we would begin to see a reduction in today's prices even if it took five to 10 years for us to get the first barrel.

Put yourself in the place of a member of the Organization of Petroleum Exporting Countries knowing there would be a greater supply of U.S. oil in five or 10 years, maybe driving oil prices down to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel? You would want to sell as much oil now and OPEC's collective efforts to do so would put downward pressures on current oil prices. Right now the U.S. Congress is OPEC's staunchest ally.

Walter E. Williams is a professor of economics at George Mason University and is a nationally syndicated columnist.

American politics

Keeping his fingers crossed

John McCain hopes to overcome his problems with the economy

A SUMMER lull has hit the American presidential campaign, so pity John McCain, the Republican candidate, as he tries to whip up excitement over his economic policy. He is in a complicated bind: voters have been battered by rising fuel and food prices; they fear a recession; home-owners have been whacked by falling house prices; and credit is growing more expensive. The problem for Mr McCain is that he has said that he does not know much about economics, and when he speaks about policy—often with admirable frankness—he frequently says things that voters do not want to hear.

Mr McCain, with his reputation for “straight talking”, has dared to eschew populism in some areas. He has touted the benefits of free trade for America just when his opponent, Barack Obama, is struggling to reconcile his earlier attacks on NAFTA with his own stated belief in trade. Last week the Republican visited Colombia, promoting a bilateral free-trade deal with the country, which Mr Obama opposes. Mr McCain opposes dishing out subsidies to America’s inefficient (and ungreen) ethanol producers, saying that he would get rid of the tariff on foreign sugar-based ethanol instead. And he is unafraid of speaking out in favour of tapping controversial energy sources, such as nuclear power and coal.

But the candidate is also ready to pander. He continues to back a petrol-tax holiday, an idea that most economists dismiss and one that Mr Obama wisely turned down. Mr McCain has reversed his position on offshore oil drilling, which he now supports, although this would bring no new oil to consumers for years. He hopes that it would send a signal to markets, bringing down prices sooner. On the housing market, he says (as did Mr Obama this week) that he would somehow rescue those who are genuinely at risk of losing the homes they live in, without bailing out speculators.

His difficult balancing act is not between left and right instincts, however, or between principle and compromise. The toughest part is between the two economically conservative wings of his party: the deficit hawks and the supply-siders. Mr McCain has hitherto sided with the former: a scourge of congressmen who stuff bills with pet projects for their districts or contributors. But the party these days is dominated by those who favour tax cuts above all, saying that the growth they produce is more important than cutting fat from the budget.

On Monday July 7th he announced that he would balance the budget by the end of his first term. That sounds all but impossible, especially given his need to appease both groups in the party. Mr McCain says he will not sign any bills with “earmarks” (those pet projects), and will freeze all discretionary spending for a year (apart from spending on defence). But he also says he will keep all of George Bush’s 2001 tax cuts (which he opposed originally) and will make other cuts, for example to corporate tax rates. He promises, not very convincingly, eventual reform of America’s convoluted tax system—an enormous and expensive challenge. And he pledges to be steadfast in the wars in Iraq and Afghanistan. But there is not nearly enough fat in the budget to cut to make all this possible. The Congressional Budget Office predicts that, if Mr Bush’s tax cuts were kept and no other changes were made, the deficit would be over $400 billion in 2013.

All presidential campaigns run economic plans with heroic, if not downright delusional, assumptions at their core. The problem for Mr McCain is that he risks, in making too many promises, tarnishing his reputation as a straight talker. There appears some unease in the McCain campaign over how to present their candidate. Among his staff there is, reportedly, conflict, as a former George Bush hand, Steve Schmidt, has been promoted to chief strategist while a McCain loyalist, Rick Davis, has been demoted, leading to talk of internal chaos.

The upshot is not encouraging for the Republicans. Opinion polls, for what they are worth, suggest that voters trust Mr Obama—despite his youth and inexperience in office—far more than Mr McCain when it comes to the economy. In addition, polls suggest that voters trust Mr Obama more on almost any related issue, such as health care, energy or taxes. If, as in 1992, the campaign to be president is all about the economy (stupid), then Mr McCain is facing an uphill fight.

Dems Aim For Last Frontier

By Reid Wilson

On election day the sun will rise over Alaska for just over eight hours. The days of the midnight sun will have long since passed. But the state that goes to bed last as polls close around the country may keep strategists from both parties awake until the final results come in. This year, in the only state with land inside the Arctic Circle, races for House, Senate - and possibly even President - could be among the most competitive in the country.

It seems like a ridiculous statement, given the state's history. In ten tries, only once has a Democratic presidential candidate won Alaska's three electoral votes, in 1964. No Democrat has represented the state in Congress since Mike Gravel lost his re-election bid in 1980. And the Democratic Party has been virtually a non-factor in recent years as Republicans continued their political stranglehold on the state.

But when one party dominates, it can succumb to laziness and even corruption - which is precisely what has happened to the Alaska Republican Party. Scandal and internal feuding among the state GOP, coupled with a year in which the dominant theme appears to be a desire for change, has given Democrats the opportunity to be competitive in one of the reddest Republican bastions in the country. Barack Obama's early commitment of resources to Alaska may further energize and boost the confidence of Democrats seeking to tackle the political equivalent of scaling the North Face of Mt. McKinley.

It may be known for bountiful fish harvests, the best crab in the world, and some of the most stunning sights a tourist could ever hope to see, but in truth, only one product makes Alaska one of the most economically productive states in that country on a per capita basis: More than 80% of Alaska's economy is derived from the oil and gas industry, far more than any other state. As is usually the case, with so much money to be made, corruption is sure to follow.

Enter Bill Allen, who served as chief executive officer of VECO Corporation, an oil services and construction company. Allen, along with two other VECO executives, were under investigation since 2004 for allegedly spreading bribes throughout the state legislature. Allen copped a plea deal, and as the investigation continues, three former state legislators have been sentenced for their roles, along with a former chief of staff to then-Governor Frank Murkowski. A fourth legislator awaits trial and rumors of other indictments flood the state.

Scandal in the statehouse isn't the only reason for the anti-incumbent mood that seems to pervade Alaska. Almost a year ago, as part of the ongoing investigation, federal agents raided Senator Ted Stevens' Girdwood home, seeking information about a remodeling project VECO officials oversaw on Stevens' behalf. Around the same time, reports surfaced that Stevens' long-time colleague, Rep. Don Young, was also under investigation for possibly accepting bribes and gifts from company executives. Both men deny wrongdoing, but in an atmosphere in which politicians are not afforded the benefit of the doubt, favorable ratings for both men have plummeted.

Stevens faces a well-known name in his race for a seventh full term in the Senate. His likely opponent, Anchorage Mayor Mark Begich, is a popular two-term incumbent whose father, Nick, represented the state in Congress almost four decades ago. Nick Begich died in a plane crash while campaigning for re-election, and his name and memory remain throughout the state.

Democratic Senatorial Campaign Committee chairman Chuck Schumer has listed Stevens' as one of five Republican-held seats in which internal polling suggests the Democrat leads, and recent public polls have shown Begich running ahead by nearly ten points. Stevens' favorable rating is an anemic 49%, with 40% who view him unfavorably. For a member of Congress whose service is so extensive that even the airport is named for him, that's a remarkable occurance.

"I'm never going to count Ted Stevens out. I don't think anybody ever would," said Democratic pollster Anne Hays, who has conducted polls for the state party. But, she said, Stevens "has never really had to mount a first-class campaign. And now they're going to have to do that." Stevens won his first election with 60% of the vote, and since then has not dipped below 66%.

If possible, Don Young is in deeper electoral trouble than Stevens. "Congressman Young is in a different position than Senator Stevens," says Republican pollster David Dittman, who works for Stevens. Young is "more combative, and he's spent most of his campaign money on his legal bills." Indeed, Young has spent more than $1.1 million on attorney's fees this cycle, according to FEC reports filed in April, and could spend more if the investigation heats up.

Public polls have shown him running up to twenty points behind former State House Democratic leader Ethan Berkowitz, and Young's favorable ratings make Stevens' look peachy: Only 35% of Alaska residents view the seventeen-term incumbent favorably, while 52% view him negatively.

Democrats shouldn't pop the champagne corks just yet. There is a real chance that Young will not make it out of the GOP primary, given Lieutenant Governor Sean Parnell's late, and surprising, entry into the race. Parnell swept into office on a reform ticket led by Governor Sarah Palin in 2006, and virtually every political watcher in the state thinks Parnell will upset Young in the Republican primary at the end of August, giving the Democrat a November opponent untouched by scandal. Republican sources in Alaska say they expect Palin -- who boasts a jaw-dropping 82% positive rating in an early-May poll -- to endorse Parnell over Young. A Palin spokesperson refused to comment on the Governor's endorsement plans.

Too, Berkowitz faces a primary of his own in which 2006 nominee Diane Benson could run strong. Benson held Young to a surprisingly narrow 57%-40% margin in 2006, though national Democrats have made their preference clear; the Democratic Congressional Campaign Committee has added Berkowitz to their Red to Blue program, which aids targeted challengers with financial and institutional support.

Democrats hoping to make big strides in the state are looking for help from an unlikely source. Even though Republicans have won almost every single electoral vote the state has ever cast, Barack Obama has offered at least early indications that he intends to compete in the state. Recent polls have shown him trailing John McCain by a small margin, and the Illinois Senator has already run two advertisements in Alaska. Such an advertising buy is a drop in the bucket for a candidate who, according to conservative estimate, could spend $200 million in the general election. A week-long saturation ad buy in the state's three markets costs just $88,800, according to one estimate.

Obama isn't skimping on staff resources, either. In addition to the two Democratic National Committee-financed staffers who were sent to Alaska under Howard Dean's Fifty State Strategy, the presidential campaign will send a number of staffers, including a state director and a press officer, to the region, according to one source inside the Obama campaign. The source would not comment on the exact number of additional staffers expected to head to Alaska, but characterized the campaign's forthcoming effort as "robust." Whether the campaign keeps staffers in place through November, or if the Obama campaign decides to pull out of the state, the early help could go a long way in furthering Democratic organizing efforts.

Political watchers in both parties are wary at the notion that Obama might actually pull close, let alone win, in Alaska. "We're not naive about this," said one high-level Obama aide. "Alaska, to us, is at this point a targeted state that we think we can do very well in." But, the aide said, "I think we're clearly the underdog."

Still, many say it's a new experience. "Presidential campaigns have pretty much ignored Alaska, and so it's a definite change to have a major presidential campaign paying attention here," said one Democratic operative. "It'll be closer than in the past, where Republicans have always done really well," GOP pollster Dittman agreed, though he thinks McCain will still win easily.

Given Alaska's general Republican tilt, Democrats have a long way to go before November in order to capture either Don Young's House seat or Ted Stevens' perch in the Senate. Obama's chances of picking up the state's electoral votes look even more remote. But in a state that has spent 50 years in the Union and only once voted Democratic for president, the party is positioned this year to make at least some gains. In fact, taking just one of the Republican-held seats in the Congressional delegation may be the closest the party gets to conquering the Last Frontier.

A Bipartisan Fix for the Oil Crisis

By JOSEPH PETROWSKI

As president of Gulf Oil, New England's largest independent petroleum company, and as someone who has spent his life in and around energy markets, I find the tone and substance of the current debate about our energy policy to be profoundly disappointing.

Partisan sides are using a serious crisis to advance political agendas, create political attack sound bites, and launch hearings to "expose" the culprit. Pick your favorite: speculators, Big Oil, environmentalists, China, India, etc.

This is not leadership.

A fundamental misunderstanding of how markets work, and how an effective government can support the private sector, is delaying remedies that will bring down energy prices now. These remedies are to be found in both supply and demand – and both Democrats and Republicans need to demonstrate their command of this fact. Energy is too important a cornerstone of domestic prosperity and international stability to be used as a debating prop.

To Democrats:

Supply must be increased, and that will require more drilling.

We can responsibly drill. The technology to find, drill and recover oil has evolved tremendously, and careless drillers will fear tort lawyers more than government regulators. The claim that the oil companies are sitting on leases and not drilling defies all logic. With oil at $135 per barrel and drilling rigs renting at $300,000 per day, there are no idle rigs anywhere. Furthermore, economic decline – and war induced by basic resource struggles – are greater threats to the environment and American workers than drilling.

Your claim that any oil we drill for now will not come on line for five years or longer – and will thus have no effect on prices today – is incorrect. Unlike past oil crises, where the spot price of oil (that is, today's price) rose more than forward prices, the oil price for delivery in 2012 is trading at $138 per barrel. The market is sending a clear price signal that our problem is in the future – because we do not have the will to curb demand or increase supply.

How many houses would someone invest in if there were a future guarantee that the price would not decline? It is anticipation of ever-increasing prices that fuels the mania.

The oil market, however, has more than anticipation; it has a well-defined forward price signal. This is a key component of the added $25-$40 per barrel in current oil prices. Congressional hearings and "make it go away" legislation will not stop that. Demonstrate the national will to address the supply and demand issues now and it will.

As forward prices decline, watch how quickly the spot price comes down.

To Republicans:

Efficiency is a huge source of new energy. It is scandalous that we have let the mileage standards decrease over the past 25 years. Whether through mandates or tax policy, active government intervention is needed. Republicans have to stop acting as if the "market" is some pristine state of nature that is not subject to active shaping.

The latest farm bill, ethanol and sugar tariffs, the cost of the Iraq war and Bear Stearns all make that reasoning ring hollow. So when some "free marketeers" attack annual biofuel subsidies of $4 billion, fleet mandates, or government research and development expenditures, it is hard not to view this criticism as at best naïveté, and at worst hypocrisy.

Finally, can we stop with the nonsensical talk of "energy independence," the end of petroleum, and postured, ineffectual boycotts of Exxon Mobil? We cannot, should not and will not be independent in a global economy, and petroleum is not going to disappear.

A more accurate metaphor is the global energy market as a giant bath tub where more withdrawals (Chinese and Indian) are being made every day. The only consistent new supply to that tub is coming from periodically unstable and unfriendly places (Nigeria, Russia, Iran, Venezuela).

Our national interest is to add more energy, use it more efficiently, and diversify its source and type. This will serve to lessen the power of any one choke point (geography, nation or source).

Using market mechanisms and the private sector (admit it, Democrats) alongside an engaged, effective and focused government (admit it, Republicans), true leaders can solve this crisis decisively.

Lexington

New and improved

The only problem with Barack Obama’s move to the centre is that he’s not moving far enough

THE reaction to Jesse Helms’s death on July 4th is a reminder of how bipolar American politics has become. The right praised him as a man of principle who also overflowed with the milk of human kindness. The left retorted—rightly, in our view—that he was also a bigot and a bully (see article). But at least conservatives and liberals have discovered one thing they can agree on: that Barack Obama is a cynical opportunist, a flip-flopper and a shape-changer, a man who brushes aside his principles with the same nonchalance that lesser mortals reserve for their dandruff.

Bob Herbert of the New York Times worries that Mr Obama is “not just tacking gently to the centre. He’s lurching right when it suits him, and he’s zigging with the kind of reckless abandon that’s guaranteed to cause disillusion, if not whiplash.” Some 22,000 people have protested on his website about his change of heart on wiretapping. A group called “Recreate68” promises to complain about his move to the centre at the Democratic convention in Denver in August.

For its part, the right has discovered that Mr Obama is not a “hard left” liberal, as it had previously thought, but a standard-issue politician who will “say and do anything to get elected”. Charles Krauthammer calls him a “man of seasonal principles”. Bo Snerdley, Rush Limbaugh’s sidekick, describes him as “the first black Clinton”. “Has there ever in recent political memory been so much calculation and bad faith by a politician who has made so much of eschewing both?”, asks Rich Lowry, the editor of the National Review.

This is all overstated. Mr Obama was always clear that he was running for the presidency of the United States, not the chairmanship of MoveOn.org. He has repeatedly presented himself as a post-partisan problem-solver who wants to work with Republicans as well as Democrats. His enthusiasm for “faith-based” social services is long held. Even on the issue that first endeared him to the left—the Iraq war—he made it abundantly clear that he was opposed to that particular war, not to the exercise of American power. Still, there is no doubt that he has engaged in a bit of vigorous repositioning in the past few weeks.

The old Obama pledged to take public financing in the general election. The new one will spend what it takes. The old Obama pledged to filibuster a bill giving legal immunity to telecoms companies that co-operated with the government on terrorist surveillance. The new one supports the bill. The old Obama failed to wear a flag pin. The new Obama talks about patriotism in a sea of American flags, praises General David Petraeus, the chief commander in Iraq, raises doubts about partial-birth abortion, agrees with the Supreme Court on gun rights, supports the death penalty for child-rapists and embraces faith-based social work.

But isn’t moving to the centre just sensible politics as the primary turns into a general election? Ronald Reagan devoted a great deal of energy to persuading people that he was not a trigger-happy ideologue. Bill Clinton sold himself as a New Democrat who felt Middle America’s pain. George Bush initially styled himself a “compassionate conservative”. The likes of Walter Mondale and Michael Dukakis, on the left, and Barry Goldwater, on the right, may have won brownie points from their supporters for sticking to their principles. But they went down to calamitous defeats. The oddity of this election cycle is not that Mr Obama is moving to the centre but that John McCain is moving to the right.

Mr Obama’s flip-flop on public finance is certainly cynical (and his willingness to justify it as an act of high principle even more so). But polls suggest that Americans are happy with a certain amount of flip-flopping: Mr Bush has all but destroyed the market in stubborn consistency. And Mr Obama’s hard-edged cynicism also helps to quell one of the biggest doubts about his candidacy—that he is too naive and soft-minded to hold the most powerful job in the world.

Mr Obama is capitalising not only on his huge fund-raising advantage over Mr McCain but also on his rival’s problems with his base. He is occupying the middle ground in order to reassure white voters that he shares their values. This is no airy-fairy liberal who is going to allow himself to be pushed around by Middle Eastern despots. This is a shrewd opportunist at work.

John Kerry’s shadow

The vital question is not whether Mr Obama is changing his positions but whether he is changing them for better or worse. Here the picture is largely positive. His new-found enthusiasm for NAFTA and free trade could help to avert a prosperity-destroying drift to protectionism. Indeed, his chief economics adviser, Jason Furman, sounds like the very model of good sense. Mr Obama’s willingness to support wiretapping in certain circumstances suggests that he is trying to strike a balance between security and privacy in what he calls a “dangerous world”: the policy challenge is not to pursue vendettas against the Bush administration but to find a reasonable set of rules to govern surveillance. His repositioning on the Iraq war represents a recognition that the situation on the ground in Iraq has changed dramatically.

If there is a problem with all this repositioning, it is that it is not going far enough for most American moderates. Mr Obama has punted on partial-birth abortion rather than denouncing the whole gruesome procedure. He has insisted on putting restrictions on faith-based social services that most churches find unacceptable. On July 3rd he held not one but two press conferences on Iraq—one in which he seemed to suggest that he would adjust his policy in the light of new realities, another in which he insisted that his position “has not changed”. Mr Obama needs to embrace centrism as a matter of conviction rather than flirting with it as an instrument of political expediency. Otherwise the accusations of flip-flopping that did John Kerry so much harm in 2004 will begin to bite.