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Rise in gas prices threatens regardless of Iraq, feds report

Friday, January 10, 2003

WASHINGTON -- Even if war is averted in Iraq, motorists should be ready to pay at least a dime a gallon more for gasoline this spring, the Energy Department says.

Oil and gasoline imports from Venezuela probably won't return to normal before summer -- if then.

Despite tight supplies of crude, the Bush administration gave no sign Thursday it was ready to use emergency oil reserves to soften the supply or price impacts, although U.S. officials were lobbying foreign producers to increase oil output.

"There's no change in the decisions that have been made," White House press secretary Ari Fleischer said when asked whether the government's Strategic Petroleum Reserve might be tapped. He said the purpose of the reserve was to respond to emergencies and implied no such situation exists at this time.

The Energy Department in a report forecast that gasoline prices nationwide would increase to an average of $1.54 a gallon by mid-spring, about 10 cents a gallon higher than this week's average, because of rising crude prices and the disruption to oil exports in Venezuela.

The forecast also said steeper price spikes are likely in some areas because of the supply cuts from Venezuela, where oil production has been virtually shut down for a month.

The Energy Information Administration report said Venezuelan production almost certainly will continue to be below normal levels into late spring and into the summer driving season, even if the country's political crisis is resolved in the next few months. It would likely take four months to return to full production after the turmoil subsides, the analysis said.

Last year, Venezuela shipped about 1.5 million barrels a day of crude and refined gasoline into the United States, about 13 percent of U.S. imports. Its refineries, now largely shut down, also are a major source of U.S. gasoline imports.

Iraq factor

The EIA projections do not take into account the turmoil over Iraq and assume that oil from that country will continue to be available at about 2.4 million barrels a day. If war erupts in Iraq all bets are off on predicting prices, agreed EIA petroleum analyst David Costello.

Last year, Iraq produced about 2 million barrels a day on average. Economists and energy expert have said serious worldwide crude shortages could develop if war erupts in Iraq and the country's imports disappear while Venezuela's oil fields remain crippled.

EIA director Guy Caruso said that "a positive sign" is that gasoline inventories at this time are on the high end of the comfort range and "in reasonably good shape."

But crude oil inventories have been declining to uncomfortable levels and some analysts fear a winter cold spell might cause refiners to focus more on producing heating oil and then run into problems getting enough crude when they shift to gasoline in the spring.

"The question (on gasoline supplies) is ... where are we going to be in the next few months or so," Costello said.

OPEC oil ministers have indicated that they will boost their quotas for crude production by 1.5 million barrels a day when the group meets this weekend to counter the loss of Venezuelan oil.

But analysts have noted that the OPEC countries have been pumping about 2 million barrels a day above their quota anyway as producers sought to take advantage of high oil prices. The actual amount of additional crude flowing into the market may not increase substantially, they suggest.

The Bush administration quietly has been lobbying some OPEC states to boost production more.

Caruso said that additional OPEC oil will not have an immediate impact because it takes at least 45 days for oil from the Middle East to reach the United States. And of course much of the OPEC crude would be destined for markets other than the United States.

"We're watching that very carefully," said Caruso, adding that more Middle East production -- as well as relatively high U.S. prices -- might result in additional European stocks of refined gasoline being shipped to the United States.

Emphasizing that his agency is not in the business of making policy recommendations, Caruso sought to sidestep questions about tapping the Strategic Petroleum Reserve to make up supply shortages.

"Obviously a lot of factors go into that decision," he said. "I think it's too close of a call right now."

The reserve holds 592 million barrels of oil and can release it at a maximum pace of more than 4 million barrels a day.


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