Rising Prices Fuel Gas Clash

OPEC's decision to cut production was expected on Thursday to raise oil prices and fuel the political battle over how to reduce the cost of filling American gas tanks.

The Organization of Petroleum Exporting Countries hopes the 4 percent cut will prevent a price drop this spring, when the global demand for oil usually slips to a seasonal low.

Some analysts, however, said the cut could soon push crude prices above the psychologically important threshold of $40 per barrel and worsen the pain for U.S. motorists.

If OPEC members stick to their quotas, U.S. crude could spike to $40 a barrel "within a week or two," said Carl Larry, an analyst at ABN Amro in New York.

U.S. gasoline prices — which now average about $1.80 a gallon — will stay high and might rise even higher, said Kevin Norrish, head of commodities research at Barclays Capital in London.

The main problem wasn't expensive crude so much as limited refinery capacity. "They're not able to process the crude oil into gasoline quickly enough," he said.

As pump prices rise, so will pressure on Congress to put together a new national energy policy, a task at which it has failed for three years.

The White House renewed its call Wednesday for Congress to act amid growing concern that high energy costs and the specter of an invincible OPEC could hurt President Bush's re-election bid.

When asked how the president intended to deal with the rising gasoline prices and OPEC's tightening of the oil spigot, White House spokesman Scott McClellan repeated a single theme: Get Congress to pass energy legislation.

"We need a comprehensive national energy policy so that we don't keep going from one crisis to the next," McClellan said.

If Congress had acted "we wouldn't be in this mess," McClellan said.

U.S. consumers still pay less for gas than many Europeans, and when current prices are adjusted for inflation, pay less than they did in 1977. But because of their key role in the economy, gas prices are often a hot-button campaign issue.

In 2000, candidate Mr. Bush had pledged a get-tough response to force OPEC to retreat when it cut production, which puts upward pressure on oil prices.

On Wednesday, McClellan said the administration would "stay in close contact with major producers from around the world to discuss these issues and make sure our views are known." He said that oil prices should be set by the market.

The White House and the Bush re-election campaign also went after Democratic Sen. John Kerry, contending that the party's presumptive nominee for president would raise gas taxes.

Addressing a campaign dinner in Washington, Mr. Bush said Kerry "supported higher gas taxes 11 times."

Democrats said the energy bills that came close to being enacted into law in both 2002 and again last year contained little that would reduce America's dependence on OPEC oil and virtually nothing that would assure an end to the volatility of gasoline prices.

Proposals to increase fuel economy were defeated repeatedly and a Bush administration proposal to tap oil in Alaska's Arctic National Wildlife Refuge also quickly became a non-issue because of strong opposition from Democrats and moderate Republicans in the Senate.

While ANWR represents the biggest untapped U.S. oil resource, a recent Energy Department study acknowledged its production would only modestly slow the growth of imports.

Another report by the DOE's Energy Information Administration recently concluded that the energy bill Congress came close to passing last year would result in no significant increase in domestic oil production and reduce oil imports — currently 9.8 million barrels a day — by a scant 100,000 barrels a day by 2010. After that imports would increase.

OPEC, which pumps about a third of the world's oil, agreed in talks at its headquarters in Vienna to reduce its output target by 1 million barrels per day.

Although it had announced plans for the cut when its members met last month in Algiers, Algeria, a subsequent surge in prices led a few of the group's 11 members to suggest postponing the decrease.

OPEC had to balance concerns that high prices could choke off economic growth with its own fears that swelling inventories and reduced demand could cause prices to plunge.

Some oil ministers denied that supply cuts would hike prices more —: OPEC President Purnomo Yusgiantoro told reporters that "crude markets remain more than well-supplied."

Others blamed a weak U.S. dollar for higher prices.

But Claude Mandil, the chief of global energy watchdog the International Energy Agency, said his group does not view the market as well supplied and argued the OPEC cut was unjustified.

Oil prices on world markets dropped Tuesday as investors sold their holdings to take profits.

But some analysts argued that prices would soon begin to rise again, especially if OPEC showed that it was determined to curtail its actual output and not just reduce its production target. Currently, most OPEC countries exceed their quotas and high prices will entice them to do so in the future.