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3.29.2000 00:04:58

Title: High prices, shortages still likely for Northeast

A combination of low gasoline stocks and the need for cleaner-burning fuel make the region especially vulnerable.

By BOB WYSS Journal Staff Writer

Despite the Organization of Petroleum Exporting Countries' decision to boost production, gasoline costing $2 a gallon and motorists waiting in long lines to fill up are still possibilities this summer.

Motorists in the Northeast and California are especially vulnerable.

The U.S. Department of Energy says the prime reason is because inventory levels of gasoline have fallen to exceedingly low levels.

Crude oil inventories hit 30-year lows in January and are only beginning to recover. Gasoline stocks were at their lowest levels since the 1960s.

Refineries have increased production but federal officials say they are still worried. And yesterday, even before most OPEC members agreed to increase production by 1.45 million barrels of crude a day, federal energy officials said it would take months to bring gasoline stocks back to acceptable levels.

California and the Northeast are more susceptible to disruptions because they each are supplied by a limited number of refineries that must produce cleaner-burning gasoline than the rest of the nation.

That combination of low stocks and the need for a specialized fuel increases the risks of supply shortages, said Tancred Lidderdale, an analyst for the DOE's Energy Information Administration.

``I don't expect a supply problem but if there is a disruption somewhere, we are concerned about the ability of the system to respond quickly,'' Lidderdale said.

The oil industry is more optimistic.

John Felmy, an economic analyst for the American Petroleum Institute, said federal energy officials are being unnecessarily alarmist.

``We don't believe that there will be any shortages as long as the government does not interfere by imposing price controls or allocating fuel,'' Felmy said.

Felmy also vowed that the domestic oil industry would do whatever it needed to prevent any shortfalls, regardless of OPEC's decision. He added that federal energy officials have become overly pessimistic since heating oil prices spiked in New England earlier this year.

The major reason heating oil rose to $2.10 a gallon in Rhode Island in February was because inventory was low and demand during a cold snap was greater than the supply of fuel.

Felmy agreed that because of the peculiar situations faced by California and the Northeast, motorists in those two regions would be the first to encounter the long lines that became famous during the energy crisis of the 1970s.

New England may be most vulnerable because there are no refineries in the region or pipelines that come directly from refineries elsewhere in the nation. Shipping the gasoline by truck or tanker takes time and further increases the likelihood of problems.

In California last year, gasoline prices soared after refineries broke down.

The average price of gasoline is now $1.58 a gallon in Rhode Island and it's been hovering at that level now for two weeks. Gasoline prices have risen over the last year from 99 cents a gallon, tracking crude oil prices, which tripled.

Prices could go down as a result of OPEC's decision, Lidderdale predicted. He said futures markets have already reacted in anticipation of the OPEC increases by lowering both the price of a barrel of crude and gasoline.

But motorists in New England may have to wait, warned Robert P. Murray, senior vice president of AAA Southern New England.

Murray said it takes about six weeks between the time the oil is produced and the time it arrives at pumps here. He said six weeks ago the price of a barrel of crude was $30; since then it has risen as high as $34.

Murray said motorists will probably see higher retail prices to cover the higher crude prices that have occurred in recent weeks.

U.S. Sen. Jack Reed was more hopeful that prices would fall after meeting yesterday with other Democratic senators and Energy Secretary Bill Richardson, who briefed them on the OPEC talks.

Reed added that he also pressed Richardson to pressure the oil industry to increase production at refineries to prevent a shortfall later this summer.

U.S. Rep. Robert Weygand had similar comments, saying that yesterday's talks were an improvement, and could have a positive effect on long-term oil prices, but that more production is needed, particularly at refineries in Mexico.

Weygand said he is asking that President Clinton release up to a half-million barrels per day of the Strategic Petroleum Reserve to stabilize oil prices. He said the administration should not wait until prices climb to $2.10 per gallon before declaring the situation a national crisis.

``This is not merely an inconvenience or a cost to consumers. It has tremendous negative impact on the economy, from transportation to disposable income,'' he said.

Rising fuel prices have had an impact on consumer goods, although the effects have not been as pronounced as 20 years ago when energy prices were a greater part of the economy.

But they can still be painful. Munroe Dairy, of East Providence, which delivers milk and other products to homes throughout the state, has begun assessing a 75-cent delivery charge.

Rob Armstrong, president of the family-owned Munroe, said he held off as long as he could but the company's 25 delivery trucks only get 5 miles to the gallon.

``Distribution is a big expense for us and we waited as long as we could,'' Armstrong said. ``I did not want to raise the price of milk and I just decided that an across the board price [on delivery] was the way to go.''

Armstrong said that so far he has had few complaints. ``I expected the phone to be roaring,'' he said. Add on this topic

Copyright ) 2000 The Providence Journal Company


-- (, March 29, 2000

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