Wednesday, March 24, 2004

The Bush administration was criticized yesterday for not acting to curb escalating oil prices even as the price of gasoline at the pump rose to a record high nationwide.

At a hearing of the Senate Armed Services Committee, Energy Secretary Spencer Abraham said the administration would not temporarily stop filling the Strategic Petroleum Reserve to help lower oil prices and it would not publicly call on OPEC to roll back production cuts scheduled for April 1.

“We’ve … made clear we’re not going to beg for oil,” said Mr. Abraham, although he later told reporters that the administration has been working behind the scenes to try to bring prices down.

“We have had a lot of contacts at a lot of levels,” he said.

“We’re not begging,” said Sen. Edward M. Kennedy, Massachusetts Democrat. “We have men and women over there” in Iraq.

Iraq has the world’s second-largest oil reserves after Saudi Arabia. The slow revival of exports from Iraq, despite U.S. control of the country, has been a factor driving up oil prices.

Mr. Kennedy and other committee Democrats said they were outraged that the administration is not doing everything in its power to alleviate the strain on drivers, consumers and businesses.

AAA announced yesterday that the price of regular-grade gasoline hit a record at about $1.74 a gallon, though the country is still months away from the peak summer-driving season, when gas prices normally are highest.

Average gas prices in California and some other states already are well above $2. The record gas prices reflect sharp increases in the price of crude oil, which hit a 13-year high of $38.15 a barrel last week in New York trading.

Many analysts expect both gasoline and oil prices to establish records in the months ahead, in a trend that economists say poses trouble for the still-uncertain economic recovery.

“It’s an intolerable position,” Mr. Kennedy said. “No one can understand it … why the president of the United States isn’t jawboning OPEC.”

Some ministers in the Organization of the Petroleum Exporting Countries recently have suggested they may defer next week’s 4 percent production cut because of unexpectedly strong growth in demand for oil in the United States and China. Other ministers, enjoying the boom in oil revenue, are resisting any change.

In announcing the cuts last month, OPEC — which controls about one-third of the world’s oil — said it was expecting consumption to wane in the spring, as it has in the past, between the high-consumption winter-heating and summer-driving seasons.

Energy analysts say it is extraordinary that gas is hitting a record high during the customary spring lull in the oil cycle, and it does not bode well for the summer.

That is when vacationing families drive consumption to peak levels in the United States and pressure on gas prices escalates because of the need for super-refined and clean fuels mandated by federal and state pollution-control laws.

California, New York and some other states have imposed stringent new requirements for summer-grade gasoline this year that will drive the already-high prices in those states to unprecedented levels — some say near $3 a gallon.

As a partial remedy, many in Congress have suggested a temporary halt in the government’s program of filling the Strategic Petroleum Reserve, which is 93 percent full. The Senate passed a resolution calling on the administration to do so in its budget earlier this month.

In a sign that the move could help alleviate the pressure on oil prices, crude prices dipped about $2 the day the Senate passed the resolution, but resumed their climb in the next trading session when the administration made clear it would not heed the suggestion.

“We have placed the national-security factor at the top of the list of considerations,” Mr. Abraham said yesterday, explaining the administration’s position. He added that the Bush administration believes the reserve “is not to be used to manipulate prices.”

But Sen. Carl Levin questioned whether the diversion of 150,000 barrels a day into the reserve is appropriate at a time when private oil inventories — at 281 million barrels, less than half the level of the 645 million-barrel reserve — are substantially below normal. Low inventories have been a major factor driving oil prices sky-high.

“Of course this is a national-security issue,” the Michigan Democrat said.

“Our economic security is important, too,” he said, noting that high oil prices are acting as “a drag” on growth. He said oil prices could drop as much as $8 a barrel if the administration stopped stockpiling.

Mr. Abraham countered that a study by the independent Energy Information Administration found that the price effect of the government’s oil diversion is “negligible.”

Sen. Jeff Sessions, Alabama Republican, said Democrats complaining about high gas prices should stop blocking drilling in the Arctic National Wildlife Refuge and other domestic reserves.

“The Alaska reserves, which are substantial, ought to be brought on line,” he said. The House has passed energy legislation authorizing drilling in the Alaskan reserve, but the Senate has not.

President Bush repeated his call yesterday for Congress to complete action on the energy legislation.

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