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Published Wednesday, June 21, 2000, in the Akron Beacon Journal. Pipeline Breaks, Increase in Cost of Crude Oil Could be Factors

BY JIM MACKINNON and Shana Yates Beacon Journal business writers

Trying to point a finger at whatever is making you pay two bucks and more for a gallon of Midwest gasoline?

You may need your whole hand.

Midwest gasoline prices have skyrocketed to record levels just in time for the heavily traveled Fourth of July holiday. The national average for self-serve unleaded regular gasoline is now between $1.64 and $1.68 a gallon -- about 50 cents a gallon higher than for July 4, 1999, according to two surveys.

Northeast Ohio gas is even more expensive.

The Great Lakes region of the Midwest now has the nation's highest gasoline prices -- $2 and more per gallon, AAA reports.

The reasons are many, say experts inside and outside the petroleum industry. A confluence of events has caused gasoline prices to spike sharply higher, they said.

Drivers caught a couple of bad breaks -- literally -- that shrank supplies as demand rose:

Two pipelines that supply gasoline to the Midwest broke. The 1,400-mile Explorer pipeline, which carries gasoline from refineries in Louisiana and Texas to Hammond, Ill., broke in March; the Wolverine pipeline from Chicago to Detroit ruptured earlier this month, worsening supply problems for Detroit-area drivers. Those breaks caused gasoline reserves to drop. While both pipelines are now operating, they are not yet at full capacity, which limits gasoline supplies.

St. Louis was granted a federal exemption from a requirement that it use less-polluting reformulated gasoline because of the March pipeline break. Conventional gasoline that otherwise would have gone to Ohio and other Midwest states instead was diverted to that city.

Worldwide crude oil prices have risen above $33 for a barrel of oil.

This is the peak driving season when demand and prices for gasoline are typically at their highest.

Refineries, which take crude oil and turn it into gasoline and related products, haven't been able to keep up with demand. The federal government and industry spokespeople say refineries are running at full capacity.

Refineries have been strained making reformulated gasoline for some markets and conventional gasoline for other areas. Critics and many consumers are accusing the oil industry of price gouging. And the federal government announced yesterday that it is launching a formal investigation.

``There is gouging on the part of the large oil companies,'' insisted Senate Democratic leader Tom Daschle of South Dakota. He and Rep. Richard Gephardt of Missouri, the top Democrat in the House, met with President Clinton last week about the issue.

Since May, with virtually no excess inventory to draw on, refineries have been running almost at capacity just to meet current demand. That's why any pipeline or refinery mishap could cause prices to spike, some experts say.

``At any other times, these are just blips,'' said Bruce Cavella, an oil market analyst with Standard & Poor's DRI. ``Now they're major happenings affecting prices.''

Tight supplies do generate higher profits. ``Refiners are going to earn historic returns in the second and third quarters,'' said Larry Goldstein, president of the Petroleum Industry Research Foundation, an oil-industry center.

But some industry experts say their hands are tied.

``It's really a legitimate supply problem,'' said Scott Berhang, spokesman for Oil Price Information Service in New Jersey. Ohio and other Midwest states get a lot of gasoline from the Texas and Louisiana-based distribution system that had the pipeline breaks, he said.

``You're still being impacted by it,'' he said. ``We think it's going to continue for a while.''

The White House, trying to stem political fallout in Midwest states pivotal in the fall election, said yesterday that the industry argument blaming new environmental rules for soaring gasoline prices ``doesn't stand the test of logic.''

It also was quietly trying to persuade OPEC oil ministers to increase crude oil production when they meet today in Vienna, Austria. It's widely believed some production increases will be approved, but the additional oil may do little to drive down gasoline prices.

White House press secretary Joe Lockhart rejected suggestions that the EPA's requirement for cleaner fuel in areas with severe summer ozone problems is to blame.

The EPA has said the cleaner gasoline should have added 3 to 8 cents to the cost of a gallon of fuel.

Former U.S. Senator Howard Metzembaum, chairman of the Consumer Federation of America, blamed the high prices on cutbacks by U.S. refiners and by the Organization of the Petroleum Exporting Countries.

``Meanwhile, the oil companies are not hurting but profiting by these shortages,'' he said. The federal government should release 2 million barrels of oil a day for 30 days from the Strategic Petroleum Reserve, Metzembaum said, which would either stabilize prices or bring them down.

Terry Fleming, executive director of the trade group Ohio Petroleum Council, said nobody called for congressional hearings from 1997 to 1999, when gasoline prices were low and tens of thousands of oil industry workers lost their jobs as a result.

``We kept prices low so we could gouge you one summer?'' he said. ``Use common sense.''

Even at today's high prices, Fleming said he has seen no decrease in demand for gasoline. That tends to keep prices high as well, he said.

``I guess that's the sign of a strong economy,'' he said. ``As long as demand stays strong, I don't see a drop in shortfall.''

The Associated Press contributed to this report.

Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com

Shana Yates can be reached at 330-996-3724.

http://www.ohio.com/bj/news/pageone/docs/018751.htm

-- (Dee360Degree@aol.com), June 21, 2000