War Needn't Cause Oil Shortages


WAR in the Persian Gulf creates two potential scenarios for motorists in the United States. If Americans rush to hoard gasoline and top-off their tanks, it could quickly lead to shortages and long lines at service stations. But if they remain calm, it could mean ``business as usual.''

The choice is up to the public.

President Bush acted within hours after the first air raids on Iraq to calm markets by releasing oil from the nation's Strategic Petroleum Reserve. Prices of crude oil initially shot up $8 a barrel in cash trading in Houston and New Orleans, to $40, minutes after the allied attack. But after reports that there had been no damage to Saudi oil production, it dropped sharply. North Sea Brent blend crude was trading at $23 per barrel in London early Thursday.

A barrel of crude oil was around $16 last June. Experts caution that the war still could bounce crude prices up and down sharply.

Worldwide oil supplies are currently plentiful, and ``war in the Mideast by itself will not trigger a world oil crisis,'' says a new report from the Hudson Institute. The US has very large stocks of gasoline on hand.

Daniel Yergin, president of Cambridge Energy Research Associates, says the flow of oil is ``dramatically better than it was in August 1990,'' after Iraq seized Kuwait. Current fighting should not cause shortages as long as the United States and its allies are winning on the battlefield.

But Dr. Yergin warns that panicked motorists, in just a few days of hoarding, could deplete US fuel supplies which otherwise would be completely adequate. Hoarding is a natural human reaction, he says, but it can ``create the pressure of shortage when none exists.''

Price hikes are another worry. Experts say gasoline prices could jump 4 to 10 cents a gallon within the next few days, which could set off panic buying. Prices had already begun to rise this week in anticipation of an allied attack.

But several major oil companies - Exxon, Mobil, Chevron, Atlantic Richfield, and Conoco - have now vowed to hold prices at prewar levels in an effort to ease public concerns. Prices at independent stations, however, could still go up.

Oil company restraint isn't entirely altruistic, according to reports in the financial press. Officials of oil firms are worried that huge fourth-quarter profits to be reported over the next few days will fuel a political backlash. Some major companies will show profit increases of 60 percent or more because of price increases after the Iraqi invasion in August, news reports say.

Meanwhile, the current economic recession is making it easier to meet US demands for energy despite the war. The American Petroleum Institute reports that during December 1990, US demand for oil products dropped 2.1 percent to 17 million barrels per day (b.p.d.), compared to levels a year ago.

Although Iraq artillery fire apparently hit one Saudi oil tank in the first hours of the war, analysts say the outlook remains bright for oil supplies for several reasons:

The US and its allies will release 2.5 million b.p.d. from their reserves to stabilize markets.

Saudi Arabia, the United Arab Emirates, and Venezuela have replaced the 4.3 million b.p.d. of lost production from Iraq and Kuwait.

Oil output in the US has risen approximately 100,000 b.p.d. since the invasion of Kuwait in August.

Peak winter oil consumption will soon end.

Even if some Saudi production is crippled, the US Department of Energy estimates that Venezuela and Mexico could add another 300,000 to 400,000 b.p.d. of output to make up the difference.

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