Oil Price analysis ...from the Boston Herald

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A barrel of politics on oil prices Scripps Howard Sunday, February 27, 2000

WASHINGTON - With oil prices hitting $30 a barrel for the first time since the 1991 Persian Gulf War, U.S. policy-makers and the public are reminded again that oil politics is local.

Joe Iuzzolino of Beltsville, Md., joined fellow truckers on the Washington Mall last week to protest diesel costs that are squeezing rig owners and showing up in higher shipping costs.

Armed with a ``Will Work for Fuel'' picket sign, Iuzzolino came in hopes of winning relief from President Clinton and Congress.

Elsewhere, northeasterners paid up to $2 a gallon this winter for home heating oil due to a 40 percent price surge. Clinton eased their pain by releasing $295 million in emergency money so low-income families can pay their heating oil bills.

On Friday in Boston, Gov. Paul Cellucci signed a measure allocating $12 million for emergency home heating oil assistance.

On the highways, most motorists seem to be taking higher gasoline prices in stride even if a gallon of self-serve unleaded gas costs $1.41 on average nationwide. That's what it sold for in 1996, before Asia's financial woes left the world awash in $10 crude oil, and down from its $1.46 peak in November 1990 after Iraq invaded Kuwait.

At $1.41, gas today is the same price it was in 1981, at the height of the Organization of Petroleum Exporting Countries (OPEC) oil embargo.

But a dollar isn't what it used to be, and $1.41 doesn't go as far today as it did in 1981:

That 1981 gas would cost $2.60 a gallon now if inflation is factored in, and benchmark crude would be $71 a barrel instead of $30.

The U.S. auto fleet is 50 percent more fuel-efficient than it was in 1973. Then, the first oil price shock caused by the Arab oil embargo left Americans waiting in gasoline lines and cars got 13 miles a gallon compared to an average 21 miles now even when gas-guzzling SUVs are added in.

Thanks to improved energy efficiency at home and work, doubled world oil reserves discovered with computers, and the rising importance of service industries, the U.S. economy now needs only half as much oil per dollar of output as it did in the 1970s.

Economist David Wyss of DRI Standard & Poor's acknowledges that oil remains a big chunk of the U.S. economy.

But he notes that $1.41-a-gallon gas is about what a bottle of designer water sells for.

Daniel Yergin, chief of Cambridge Energy Research Associates in Cambridge, has a different take.

To him, the 1999 price plunge to inflation-adjusted levels not seen in 60 years is the true oddity.

With gas at 90 cents a gallon and crude at $10 a barrel last year, he says, ``Americans were paying the lowest prices they had paid for gasoline since the Great Depression,'' a situation that couldn't last.

Indeed, leading corporate forecasters surveyed by the National Association for Business Economics (NABE) see higher oil prices as an ``upside risk'' to the 109-month expansion. Higher oil prices, they figure, may slow the booming economy enough to keep the Federal Reserve from hiking interest rates more.

The No. 1 problem NABE forecasters see for the U.S. economy? Not oil. But ``the stock market bubble.''

Still, official Washington has snapped to on oil costs:

Besides releasing emergency home heating oil funds, Clinton sent Energy Secretary Bill Richardson to see OPEC leaders in hopes they will reopen the oil spigot when they meet March 27, to push world prices back to $20 to $25 a barrel. Richardson said yesterday that he had won an encouraging response from Saudi Arabia to his plea to pump more oil to tame high prices.

Members of Congress from energy-reliant states are pushing a blizzard of bills that include sanctioning OPEC, tapping the 570 million-barrel Strategic Petroleum Reserve, and suspending the 24-cent-a-gallon federal tax on diesel fuel for six months. <<<

-- Irving (irvingf@myremarq.com), February 27, 2000


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