US Pressured to Tap Oil Stockpile

STRATEGIC OIL RESERVES

A RISING tide of consumer complaint about high energy prices is forcing the United States to take a long hard look at its strategic oil reserves. Is it time to open the spigot? Should Uncle Sam reassure the world oil markets, in the aftermath of Iraq's invasion of Kuwait four weeks ago, with the balm of emergency stocks?

An increasing number of energy analysts and marketers say yes.

``We think it would be a wise policy to use it,'' says Kevin Lindemer, an energy analyst at Cambridge Energy Research Associates in Cambridge, Mass.

``What is needed is some calmness - something to cool down the market,'' says Robert Lynch, executive vice-president of Empire State Petroleum Association, which represents 450 gasoline and oil distillate marketers in New York State.

Even a statement by President Bush that he was considering such a move would calm the markets, he adds. ``If this doesn't happen quickly, the market will overheat and people will get injured'' economically.

The price of crude oil has more than doubled in the past few months. This rise has sharply boosted gasoline prices across the country.

The next sign of the Bush administration's intentions toward the Strategic Petroleum Reserve could come this Friday, when the US and 20 other industrialized oil-consuming members of the International Energy Agency are scheduled to meet. The Paris-based agency was founded in the wake of the 1973-74 Arab oil embargo to coordinate national energy policies and set up an emergency oil-sharing system.

If there is a decision to tap strategic oil reserves, it will probably be done multilaterally, according to federal officials.

``We are ready to use it in coordination with our allies,'' says Phil Keif, spokesman for the US Department of Energy (DOE). In his Aug. 8 televised address on the Iraqi invasion of Kuwait, Bush stressed this multilateral approach: ``I will explore whether we and our allies should draw down our strategic petroleum reserves.''

Private analysts suggest the President also may have been waiting on other members of the Organization of Oil Exporting Countries, such as Saudi Arabia and Venezuela, to increase production in order to calm markets.

The US Strategic Petroleum Reserve is a series of six storage sites along the Texas and Louisiana coastline. It now holds 597 million barrels of oil. That's enough to offset US imports from Iraq and Kuwait for more than 800 days - or handle a complete disruption of US imports for 75 to 80 days, according to DOE.

By law, only the President can decide when to use the reserve and only when the International Energy Agency acts or when he determines the US faces ``a severe energy supply interruption.''

Not all analysts believe the nation's energy situation has gotten severe enough to warrant using the reserve.

``I think it's crazy,'' says Richard Drobnick, director of the International Business Education & Research Program at the University of Southern California. ``We don't know if we are going to have war over there or not.''

If war breaks out, Iraqi missiles could destroy at least some of Saudi Arabia's oil facilities, he says. In earlier decades, that loss would have sent prices skyrocketing and severely disrupted Western economies. But the strategic reserves of countries such as the US and Japan have greatly limited the potential for such economic mischief. And Iraqi leader Saddam Hussein knows it, Mr. Drobnick adds. ``The bigger that reserve, the more bargaining power you have with Saddam.''

``I think it's premature to open the reserve,'' agrees Bill Johnson, a part-time professor at Rice University and former federal energy official at the time the Strategic Petroleum Reserve was created. ``The worst thing we could do would be to depress prices'' now.

Such a move would destroy the incentives for other nations to produce more oil and for the US to conserve energy and switch to other fuel alternatives, such as natural gas, he adds.

Nevertheless, grassroots pressure is building here to curb the increase in gasoline prices.

Last Thursday, the antitrust division of the US Justice Department announced it was summoning the major oil companies to determine if their had been illegal moves to drive up gasoline prices. The move came after representatives from 36 states called for such federal action.

In New York, where the average price of a gallon of unleaded gasoline has jumped 12.2 cents since the invasion of Kuwait, the state's top consumer protection official, Richard Kessel, said the major oil companies were exploiting the situation.

Even the Motor Fuels Committee of the Petroleum Marketers Association of America - normally a free-market-oriented group - last week reversed its long-held stand on the issue of oil companies owning retail service stations. The committee charged that the oil companies were unfairly raising the price of gasoline for independent service-station owners while not doing the same for its own service stations. The association's board will vote in October on whether to ask for a federal law to prohibit oil companies from owning retail outlets.

The main charge is that the price has risen too far too fast on oil that was already in the US before the Iraqi invasion. Energy economists point out, however, that such increases are typical of any commodity, which often rises or falls depending on what might happen to future supplies. In fact, they say the rise in crude oil prices suggest that gasoline prices could increase another 20 cents or so a gallon if the current Mideast situation does not change.

Here in Pennsylvania, where the price of unleaded gasoline has gone up an average 14 cents a gallon since the invasion, a top energy official says that retail prices quickly reflect the changes in the wholesale price.

``We have not been able to uncover any particular price gouging,'' says Jan Freeman, executive director of the Pennsylvania Energy Office.

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