Midwest Gas Prices Rise, OPEC Meets
June 19, 2000 - Lawmakers from the Midwest are holding hearings in Chicago Monday, to get to the bottom of soaring gas prices. Oil company officials are supposed to explain their side of the story.
The price at the pump is over $2.00 per gallon, 40 cents above the national average. Gas companies blame a new cleaner-burning gas formula for the price increase.
The Environmental Protection Agency says that's not so.
Environmental Protection Agency chief Carol Browner has asked the Federal Trade Commission to investigate. She says there's no evidence of a supply shortage.
She says that the cleaner-burning gasoline that companies were required to start producing at the start of the month also isn't to blame.
Wisconsin and Illinois lawmakers are also scheduled to meet with oil company officials on Capitol Hill later this week.
In a related story, Illinois Congressman Rod Blagojevich wants Kuwait and Saudi Arabia to increase oil production or pay more for U.S. military help.
The Chicago Democrat says he'll introduce a bill this week to force the issue if those countries don't voluntarily help ease the oil shortage that's contributing to high gas prices.
Under pressure from the United States and other oil importers, ministers from the Organization of Petroleum Exporting Countries meet Wednesday in Vienna, Austria. They are expected to agree this week to boost petroleum output by at least 500,000 barrels a day, or by 2 percent.
Even if they decide against it, Blagojevich says, Kuwait and Saudi Arabia should increase production on their own.
A Nigerian delegate speaking Monday in Vienna said that OPEC members have accepted the need to boost output starting July 1. Indonesian officials said last week that OPEC would raise production by 500,000 or more barrels a day.
"There is absolutely, definitely going to be an increase," said Richard Savage, an analyst at SG Securities in London.
But before OPEC decides on any increase, it must reconcile conflicting data about whether the world actually needs more oil.
On one hand, some OPEC members have argued that the supply and demand for crude are in balance and that an increase in output isn't justified.
The International Energy Agency seemed to reinforce their case, claiming earlier this month that oil inventories for the world's wealthiest countries grew by a robust 1.75 million barrels a day in April and that global crude output rose sharply in May.
"Fundamentally, there's not a shortness in crude supply," Savage said.
A complicating factor is a labor dispute that threatens to shut down oil production as of midnight Friday in Norway, which is not a member of OPEC but is the world's second-largest oil producer after Saudi Arabia.
Meanwhile, soaring U.S. gasoline prices, together with temporary regional shortages caused by pipeline problems in the central United States, have fed the short-term demand fr crude.
But analysts warned Monday that such an increase wouldn't lead to cheaper prices at the pump for American motorists any time soon.
"No matter what OPEC decides, it's going to be a tough gasoline season in the U.S.," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.
Crude shipped from the Middle East takes 45 days to arrive at American ports. By the time fresh supplies reach U.S. refineries, the summer driving season will be winding down and demand for heating oil will be growing.
OPEC has added to the confusion by refusing this month to activate a formula that automatically would have raised production when the average crude price exceeded $28 a barrel.
OPEC members chose not to increase output automatically by 500,000 barrels a day, as the mechanism calls for. They opted instead to defer a decision until this week's meeting.
Analysts noted that OPEC already is producing about half a million barrels above its official daily quota of 24.69 million barrels. A formal increase might do little more than "legitimize" the current level of cheating, Gignoux said.
The United States, the world's biggest oil market, is believed to be pressing OPEC for 1 million new barrels each day. However, many OPEC members have little spare production capacity. One such constrained member is Iran, the group's second-largest producer and a traditional supporter of high oil prices.
OPEC members are Saudi Arabia, Iran, the United Arab Emirates, Kuwait, Qatar, Nigeria, Libya, Algeria, Venezuela and Indonesia. Iraq also is a member but has not participated for several years in OPEC production pacts.