Gas and Oil Prices Hot Topic in the Capitol

05/01/96

The rising price of gas and oil in the market and at the pumps has caught the eye and imagination of Washington. Gasoline and crude prices have climbed to a five year high and lawmakers have called for the repeal of 1993's 4.3 cent per gallon increase in gas taxes (Bob Dole) and federal investigation of whether oil companies gouge prices, collude to keep prices artificially high, or violate anti trust laws (democrat representative from Massachussets, Edward Markey and republican senator from South Dakota, Larry Pressler). The President has reacted to these cries by . . . well, by throwing some oil on the fire, so to speak.

President Clinton ordered the Energy Department to sell off 12 million barrels of oil from its Strategic Petroleum Reserve of 587 million barrels. The Government established the strategic reserve during the energy crises of the 1970s to protect the United States from imported oil supply disruptions. Although his critics have called the measure symbolic and ineffectual, prices for oil and gas futures plummeted in response to the announcement: gas prices on New York's Mercantile Exchange closed off 1.61 cents per gallon at 75.40 cents and crude oil dropped 88 cents to $21.55 per barrel.

Analysts say the move is largely symbolic because of the small amount of oil the government is going to sell. Daily refinery oil consumption in the U.S. averages 17 million barrels, while the President has ordered the sale of only 12 million barrels. An Energy Department source has estimated that the sale will put 600,000 barrels a day on the market and last for 20 days.

Critics have said that the only effect of selling strategic reserves will be psychological. Prices are widely believed to be high because supplies are tight. Supplies are tight because the oil industry has adopted a strategy of trimming oil stores to save money and turn bigger profits. The practice may make investors and shareholders happy, but it clobbered self-serve consumers at the pumps. A cold winter drew down inventories even further.

In addition to selling reserves, President Clinton has directed Energy Secretary Hazel O'Leary to report on factors that led to the price jump of the last month and to analyze the outlook for the rest of the summer driving season.

In a statement the President said, I believe these are the appropriate steps to take at this time. My administration will continue to monitor developments in this market in the coming weeks."

Paul Dever -- The Auto Channel