- The Washington Times - Wednesday, September 13, 2000

Government efforts to fill an emergency oil reserve to cushion against shortages of heating oil this winter threaten to drive up prices even further, leading analysts said yesterday.
The assessment came as President Clinton said the administration is making every effort to fill a 2-million-barrel reserve by October as a buffer against shortages in the Northeast, where heating oil is in short supply and prices are expected to be 30 percent higher on average over last year.
"We are concerned about the potential unintended consequences" of the reserve, John Felmy, statistics director of the American Petroleum Institute, said at a hearing in Boston. Filling the reserve with oil intended for commercial use could reduce supplies available to consumers as they begin stocking up for the winter, he said.
Establishing the reserve also may give consumers a false sense of security and discourage them from building up their own inventories of fuel to tide them over should the winter prove to be a cold one, Mr. Felmy said. And it could discourage companies from importing the reserves they need, he said.
Oil-market analysts agreed, though prices for home-heating oil and crude oil both declined yesterday from 10-year highs following Mr. Clinton's comments.
The president's remarks were intended to send prices lower, but "damage control will not alleviate the problem," said Chester Irvin, a trader at ABN Amro Inc. in New York.
Crude oil for October delivery fell 2.5 percent to $34.28 a barrel on the New York Mercantile Exchange after reaching a 10-year high of $35.85 Monday. Heating oil for October delivery fell 0.3 percent to $1.05 a gallon, retreating from a 10-year high of $1.08 in earlier trading.
"We're working very hard to make sure our home heating oil reserve is filled for the Northeast by the end of October, and I think we'll get there," Mr. Clinton said at the White House. "We need to make sure we do everything we can to get through this winter."
Last year, 10 million U.S. households and 500,000 commercial buildings used heating oil, according to the American Petroleum Institute.
Since the heating-oil reserve would not be available until next month, the administration also has considered other options "in the event we have a tough winter," Mr. Clinton said, including releasing crude oil from the 570-million-barrel Strategic Petroleum Reserve.
But analysts say that too could prove futile, since the problem for consumers is a shortage of refined products such as heating oil and diesel fuel, not crude oil. Refineries are operating at full blast and may not be able to pump out any more even if more crude supplies are made available.
"It's not clear that more oil is what the market needs now," said Jay Saunders, oil analyst with Deutsche Bank Alex. Brown in Baltimore.
Any move by the White House to release crude oil from the strategic reserves would be "politically motivated" and might backfire, he said, because it could prompt a cut in production by members of the Organization of the Petroleum Exporting Countries.
Deutsche Bank predicts that both crude and heating oil supplies will remain tight and vulnerable to price shocks throughout the winter, despite the efforts of OPEC and the administration.
Unusually cold weather could push crude prices toward $40 a barrel and price shocks could occur if Iraq curtails exports in coming months, Mr. Saunders said.
A commission at the United Nations this month may approve a claim from Kuwait for reparations by Iraq for lost oil production during the Gulf war. Iraq may choose to retaliate against any adverse decision by cutting oil exports, Mr. Saunders said.
Bill Dudley, an oil analyst with Goldman Sachs & Co., last week said crude prices could jump as high as $50 a barrel.
Other disruptions in oil supplies could be caused by a late-summer heat wave, a sharp early cold snap, hurricanes that shut down natural gas production in the Gulf of Mexico and electrical outages, Mr. Felmy said.
Rather than focus on filling the oil reserves, Mr. Felmy recommended that the federal government increase assistance for low-income consumers, dealers and truckers hit hard by the price increases.
Democrats on Capitol Hill blame the oil industry, however, for allowing the heating-oil shortage to occur. Rep. Edward J. Markey, Massachusetts Democrat, is calling for an investigation by the Energy Department.
"The industry's failure to maintain inventories is leaving consumers out in the cold, and it's only September," he said. "The oil companies have failed to provide ample stockpiles to deal with the routine demand for home heating oil that occurs every year. We want to know why."

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