- The Washington Times - Wednesday, March 29, 2000

A divided Organization of the Petroleum Exporting Countries, under strong pressure from the United States, said yesterday it would increase production but not by enough to prevent high gasoline prices and spot shortages this summer, according to analysts.

As a result, Senate Majority Leader Trent Lott said yesterday that plans to start moving toward cutting fuel taxes temporarily would continue. The first action a repeal of the Clinton administration's 4.3 cents a gallon tax on gasoline should be voted on by the Senate tomorrow, his office said last night.

Nine of the 11 nations in the international cartel agreed after two days of meetings in Vienna, Austria, to raise production by 1.45 million barrels a day, or 7 percent, starting Saturday, reversing production cuts they ordered a year ago that caused a tripling of oil prices.

With demand growing due to robust economic growth in the United States, Asia and other parts of the world, the trickle of increased production will not be enough to alleviate a shortage of gasoline supplies at refineries in the United States, analysts said.

Those shortages could lead to spikes in gas prices to $2 a gallon in some parts of the country, and even spot shortages during the summer driving season when demand for gas peaks, they said.

"There's no slack in the system," said Michael Young, analyst with Deutsche Bank's global oil and gas research department in New York. "It won't be an energy crisis, but I would not be surprised to see spot gasoline shortages and oil prices spiking back over $30 a barrel this summer" from about $27 currently.

Already, consumer confidence has been hit by record-high gas prices at the pump, averaging more than $1.50 a gallon, and huge jumps in home heating-oil prices this winter. People have been screaming, Mr. Young said, but that could be "just a microcosm of what could happen over gasoline prices this summer."

OPEC's closely watched decision comes after an extraordinary month of lobbying by the Clinton administration and threats of retaliation by Congress to cut off military and financial aid to OPEC nations that hold back production.

The pressure promises to continue, as U.S. Defense Secretary William S. Cohen begins another round of oil diplomacy in a visit to the Middle East next week, urging further production increases by Saudi Arabia, Kuwait and the United Arab Emirates. The administration has been pushing for added production of 2 million to 2.5 million barrels a day.

Iran, which argued for a 1.2 million-barrel increase, refused to go along, despite two days of cajoling by other OPEC members. Another member, Iraq, was not part of the agreement but has said it will increase production by up to 700,000 barrels a day as allowed under a U.N. embargo.

President Clinton was optimistic that yesterday's decision by OPEC, in combination with likely production increases of 300,000 barrels a day by Mexico, Norway and other non-OPEC countries, would produce some relief for oil-thirsty Americans.

Some of the oil exporters have been "cheating" by pumping more than their quotas, and that may continue, analysts said.

"In the aggregate, it could be sufficient to get production and consumption back into alignment and rebuild some of these stocks, which are at their lowest point in a decade," Mr. Clinton said.

Under the glare of the international spotlight, members of the oil cartel, which controls about 40 percent of the world oil market, conceded that their decision came partly in response to the crescendo of public outrage in the United States. Saudi Arabia, the world's largest oil producer, was aghast at becoming a target during the presidential election season, analysts said.

Others said they didn't want OPEC to be blamed for an economic retrenchment in Asian countries that are recovering from recessions and have been hit hard by rising oil prices.

Kuwaiti Oil Minister Sheik Saud Nasser Sabah told reporters in Vienna that political considerations, including U.S. diplomacy, played a bigger part than economic factors in his country's decision to push for a comparatively large increase in production.

While the U.S. campaign apparently paid off with the recruitment of Kuwait, Saudi Arabia, Venezuela and other key OPEC members, who prevailed in pushing the production increase through, it also irritated longtime U.S. antagonists and led to yesterday's split within the cartel.

Iraq and Iran said the group should resist threats from the United States, the world's biggest oil-consuming nation, and shore up the interests of the oil-producing nations, which have been enjoying economic revivals because of the jump in oil prices to as high as $34 a barrel earlier this month.

Iran's oil minister, Bijan Namdar Zangeneh, resisting recent overtures from Washington, said OPEC should make decisions free of outside interference.

"Our difference is on principle, and not on merely a few barrels," he said yesterday. "In my view, OPEC is not an organization to rubber-stamp a decision already made." Earlier, he said "it is a bad signal for us and other producers to decide under political pressure."

Iran, OPEC's second-largest producer, stands to lose from yesterday's decision, since it already is pumping about as much oil as it can, and will suffer from any decline in prices.

Crude-oil prices fell in anticipation of OPEC's decision by 70 cents to $27 on the New York Mercantile Exchange, but started to inch up in after-hours trading as news of the production increase came out.

Oil prices remain sharply above the lows of near $10 a barrel touched in 1998. Yesterday's decision appears aimed at stabilizing them in a range between $25 and $30 a barrel, analysts said.

Mr. Young of Deutsche Bank said the unrelenting U.S. pressure on OPEC has the potential to backfire. "They're irked. You have U.S. senators and representatives threatening legal action against OPEC and wanting to send representatives to OPEC meetings to exert pressure."

As was seen with Iran and other hard-line states, "all this politicking may have a reverse impact," he said. "The Arabs feel they're being bullied."

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