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Administration Optimistic On Oil Prices

Energy Secretary Bill Richardson called the news that Iran won't interfere with a boost in oil production "a welcome move forward."

Richardson said he has received statements from Iran and Saudi Arabia highlighting "a need for price stability."

In the past, Iran has resisted a boost in production.

Oil markets plunged a whopping 10 percent on Wednesday after OPEC sources reported price hawk Iran had lifted its objection to a cartel output increase from April 1.

During a Senate Armed Services Committee meeting Thursday, Richardson was asked what Iran would expect in return.

But Richardson said the U.S. is not involved in a give-and-take on the issue.

"These nations are now much more tied into us economically and politically," oil industry analyst Daniel Yergin said, giving the U.S. more leverage in pushing for more production.

Richardson also said he expects U.S. prices to drop within a month of the heightened oil-production.

The major oil ministers are scheduled to meet March 27th in Vienna, where they are widely expected to increase oil production.

White House economic adviser Martin Baily sees "nasty inflation numbers" from the dramatic jump in fuel costs, reports CBS News Correspondent Peter Maer. In a CBS Radio News interview, Baily said the effects will show up in the February inflation report.

"The fuel price increases that we've already seen are going to feed through into overall inflation," he said.

The president's economic advisor expects overall inflation to jump by about three tenths of a point. But he cautiously notes Futures markets indicate the price of crude oil and gasoline will decrease later this year.

Cambridge Energy Research Associates chairman Yergin doesn't expect the rationing and long lines of the 1970s.

"This is not the '70s. This isn't an instant replay. We're not going to have the political confrontation that we had then," he told CBS News Early Show Anchor Bryant Gumbel Thursday. "What we will see will be measured in prices. The supply will be available."

Still, the big increases in gasoline prices may be sparking some renewed interest in conservation.

"You do see some second thoughts now on SUV purchases and people paying a little more attention to fuel efficiency, which they didn't have to do for several years," Yergin said.

Yergin blames the steep increases in home heating oil and gasoline prices to better discipline among oil producing countries to cut production — which some of the countries are now planning to increase.

"Prices are also up because this happened at the same time as a strong U.S. economy and a strong recovery in Asia which has pushed up demand for oil, meaning people driving more cars, factories working more," he added.

The Pulitzer Prize- and United States Energy Award-winning oil analyst cites three reasons why oil-producing countries will increae production and prices will come down:

  • "The U.S. government is all over them and remember this is an election year.
  • "We are their main market and you don't want to make your main customer really mad.
  • "They recognize if you have prices at this level that it could have a serious impact on our economy in term of inflation and a recession. If the U.S. economy catches cold, for instance, Mexico gets the flu."

Baily rejects Republican calls to cut a federal excise tax on gasoline.

"The President wants to keep all options on the table in terms of how he's responding to these high prices," he said. "At this time there are no plans to cut the tax.

The administration says a fuel tax cut could hurt federal highway building and repair projects.

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