US leads push for lower oil prices

Over the weekend, G-7 members praised US move to tap emergency reserves, saying they may follow suit.

The world's oil-consuming nations are getting serious in their efforts to bring down the price of oil.

In a message to OPEC and oil speculators, the US and other major oil users are turning to their oil reserves - which are designed for emergency use.

The effort carries a high degree of risk. Oil traders may snap up the additional crude oil on the world's futures markets or oil-producing nations might reduce their output. But it might also provide consumers with their first respite in months.

The intervention in the oil market, which started Friday when President Clinton opened up the spigots on the Strategic Petroleum Reserve (SPR), gathered momentum over the weekend as other industrialized nations praised the US move and said they may now tap their own country's emergency oil reserves.

Oil experts believe the effort will, at the very least, have a temporary effect of lowering prices - perhaps as much as 10 percent. However, the additional oil is not likely to make any significant difference in increasing the amount of heating oil or diesel this winter, since US refineries are already operating at close to capacity.

"Releasing a ton of oil is not going to result in a ton of home-heating oil or gasoline," says John Huber, a vice president at the Petroleum Marketers Association in Washington. "It's really not going to affect actual inventory levels at all."

A drop in the barrel

Although the White House move to release 30 million barrels over the next 30 days may not have any lasting impact on prices, it will help stifle political criticism. In recent weeks, politicians in the Northeast have been warning the president that heating-oil inventories are dangerously low.

The US release of oil will provide 3 to 5 million barrels of home heating oil - or about one cold January day's supply. In addition, Mr. Clinton asked the Department of Health and Human Services to release a record $400 million to help poor families heat their homes.

The White House move to open the SPR immediately prompted a response from Republicans, who favor helping poor people buy fuel but oppose interfering with the free market. "The Strategic Petroleum Reserve is there for a national security crisis, not for a political crisis," says Gov. Tom Ridge of Pennsylvania. "Everyone from Alan Greenspan to the vice president's own Treasury secretary has warned that tapping the strategic reserve is a bad idea," adds Sen. Rick Santorum (R) of Pennsylvania.

The Clinton administration denies the move is political. On Friday, Energy Secretary Bill Richardson said the administration acted because home-heating-oil inventories are low.

According to the Energy Department, distillate levels are 19 percent lower than last year on the East Coast and 65 percent lower in New England. "This is not political. We want to help get home-heating oil in homes," says Mr. Richardson.

But home-heating-oil providers believe the DOE misunderstands the marketplace. With the price of oil high, home-heating-oil companies are not building up stockpiles.

"With oil at $35 a barrel, our people are thinking oil is at the top end of its range - if it falls from here I could get crushed," says Mr. Huber. "When oil was $10 a barrel, they would have leaned more toward storing it since it was dirt cheap."

Huber says the home-heating-oil companies have adopted the "just in time" style of inventory management prevalent in other industries. "Our people are not going to put 5 million barrels in storage for a rainy day," he says. "We live on current supply."

Whether that supply lasts through the winter depends largely on the weather. Last year, the industry had trouble meeting demand because ice made it difficult to move supplies.

OPEC turns on spigot

This year, the price of oil is much higher, reflecting the pick-up in the world economy and a drawdown in worldwide oil supplies. OPEC recently agreed to increase production by 800,000 barrels per day, starting Oct. 1.

Late last week, in anticipation of the White House move, the oil markets declined sharply. Home-heating oil dropped as well, falling 4 cents a gallon to 96 cents a gallon on the futures market.

Chris Moore, an oil analyst at Merrill Lynch & Co., says some of the drop was also related to the recent run-up last week when there was concern over comments made by Iraq over an oil dispute with Kuwait.

"There had been some speculation," says Mr. Moore. The Clinton move to put more oil on the markets helps dampen some of that speculation.

The Clinton plan is only supposed to be temporary. The 30 million barrels of oil will be drawn out of the 570-million-barrel stockpile in Louisiana.

The companies that buy the oil will be responsible for returning it to the stockpile at a later date - with an additional amount as interest. This week, Richardson will meet with oil executives to iron out the details.

(c) Copyright 2000. The Christian Science Publishing Society

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