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Crude Awakening
Oil prices have risen above $30 for the first time since the Gulf War
Gas Prices Likely to Remain High
For Summer Travel

President Clinton has announced a series of measures that will bring relief and assistance to Americans being hit by the high price of heating oil.

AP/Wide World
Cepeda Ismael raises the prices on the sign at the Gaseteria station in New York.

An extra 15 million gallons of crude oil are also heading to U.S. ports to ease the United States' ever-tightening supply. But the Clinton administration said Wednesday these measures are only short-term solutions to rising oil prices.

Speaking before an "energy" summit convened in Boston Wednesday with 350 Northeastern lawmakers, consumers and business owners, Energy Secretary Bill Richardson said long-term solutions to the high prices will come only with improved cooperation of the Organization of Petroleum Exporting Countries (OPEC), whose cutbacks in production have drained international oil inventories and tripled prices within the past year.

Richardson leaves Saturday for Mexico to discuss oil prices. Though not an OPEC member, Mexico cut oil production in sympathy with the oil cartel. Analysts point out that it is one of the few non-OPEC oil-producing countries that could quickly raise crude oil output.

Richardson is scheduled to visit Saudi Arabia and Kuwait, two big OPEC producers, next week. OPEC cut crude oil production by 2 million gallons a day last March in an effort to recover prices that had fallen to 12-year lows. But while analysts appear to agree that OPEC will most likely bow to the international pressure put on by industrial nations to increase supply, they say it will take time to bring supply in line with demand.

Roger Diwan, managing director for global oil markets at The Petroleum Finance Co. in Washington, expects OPEC will increase oil production 1.5 million to 1.7 million barrels a day, but said inventories at refineries are already so low the increase "won't be enough to bring prices down dramatically and change the gas outlook in the United States."

Diwan said Americans should prepare for national gas prices averaging $1.60 a gallon before they begin easing.

Crude oil futures closed Monday at $30.25 a barrel — topping $30 for the first time in nine years, but in midday trading in New York Wednesday, futures had dipped back below $30. However, gasoline prices soared to a nine-year high of 85.05 cents a gallon.

The problem has also been exacerbated by a cutback in production by American refineries, which normally speed up production during the first three months of the year in anticipation of the increased summer demand. But the high price of crude oil has hampered domestic production.

Julian Lee, a senior analyst at the London-based Center for Global Energy Studies, also expects an OPEC production increase, arguing that the cartel realizes oil has become too dear. He points out that oil at $30 a barrel could cause inflation — and ultimately economic slowdown — in oil-consuming countries. This, in turn, will dampen oil consumption.

"OPEC countries do not want to see economic growth slow," Lee said. "They are looking to produce oil for those countries into the distant future. They want a balance."

Michael C. Young, an oil analyst at Deutsche Banc Alex. Brown investment bank in Boston, also expects OPEC ministers to raise production to a level that would reduce crude oil prices to about $25 a barrel this summer. Still, he believes gasoline could hit $1.50 before then, and that prices could hit as high as $1.70.

The price of crude oil for delivery in March rose further in early trading Tuesday on the New York Mercantile Exchange, but eased later and settled down at $30.06 a barrel.

Meanwhile, President Clinton's reluctance to tap into the nation's 500 million gallon emergency petroleum reserves to ease prices has become an issue in his wife's New York Senate campaign. Mrs. Clinton's opponent in the race, New York City Mayor Rudolph Giuliani, has criticized the president for not using the reserve to alleviate the consumer burden at the pump.

The administration is limited by law from using the emergency stockpile in the Strategic Petroleum Reserve to control prices, but Richardson said the reserve would be used in the instance of a "severe energy supply disruption threatening our nation's security."

OPEC Divided Over Next Move

Among the OPEC oil producers, opinion remains sharply divided over whether to pump more oil to discourage companies from exploring for new oil, or keep production capped at current levels and bank the healthy profits.

In Caracas, a Venezuelan official said the soaring prices did not threaten the global economy but acknowledged that some mechanism was needed to "rationalize" prices.

"The idea is to rationalize the market to avoid both upward and downward swings which favor neither consumers or producers," said deputy energy minister Alvaro Silva.

OPEC members Iran and Indonesia favor extending the current production cuts to keep oil prices high. Saudi Arabia, the world's biggest oil producer, said prices had been reasonable overall during the past six months and the market should not panic over short-term fluctuations.

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