Analysts: US Risks Fuel Spike with Closed Reserve
By Richard Valdmanis
Friday January 3, 9:42 am ET
NEW YORK (Reuters) - The United States is taking a gasoline price gamble by declining to open its emergency oil reserve despite an export crisis from Venezuela that has begun to cut deep into U.S. oil supply, energy analysts said Friday.
U.S. refiners, including Citgo and Amerada Hess, have requested oil from the U.S. Strategic Petroleum Reserve (SPR), citing the loss of 2.7 million barrels per day of crude from strike-bound Venezuela. But so far the requests have been turned down by a White House preoccupied with Iraq.
Fears abound that, without a release from the SPR, U.S. refiners may be hard pressed to pad gasoline supplies enough to avoid a price spike this summer when drivers return to the roads for the vacation season.
"The U.S. government showed poor judgment in not responding to the legitimate timing needs of U.S. refiners," said Dr. Gary N. Ross, Chief Executive Officer of PIRA Energy Group in New York.
"The end result may be that the U.S. consumer will pay the price if there's not enough gasoline for the upcoming spring/summer season," he added.
Oil supplies from OPEC-member Venezuela -- which normally supplies around 13 percent of U.S. gasoline imports -- have been shut off since Dec 2 by an open-ended national protest against leftist president Hugo Chavez
U.S. stocks of crude oil have fallen close to their lowest level in 26 years, Major U.S. refineries which normally depend on Venezuelan crude have had to lower production of fuels because of rising crude feedstock prices.
"The worries that some have is that you've taken out a significant chunk of exports from Venezuela into the U.S. as well as the regional market, which needs to supplied from somewhere else," said Jan Stuart of ABN Amro.
"The run-up to driving season looks tighter than it did last year and brings back memories of 2000 and 2001," when gasoline prices spiked due to low supplies, Stuart added.
TWO-YEAR HIGHS
U.S. crude oil prices have already run up to their highest level in two years, coming within $5 of the $37-plus per barrel level in late 2000 that forced President Bill Clinton to tap emergency reserves to quell winter heating prices.
So far the Bush administration has resisted calls to open the SPR, created by Congress in the mid 1970s after the Arab oil embargo. The administration is filling the reserve -- which currently holds 600 million barrels -- to its capacity of 700 million barrels by 2005.
"A reserve release does not appear to be on the agenda at this precise moment, and perhaps will not be until events start to move elsewhere in the world," said Paul Horsnell of J.P Morgan bank in a report.
U.S. motorists are the world's biggest consumers of gasoline, burning more than 12 percent of the world's daily oil supply. Gasoline consumption has grown about 5 percent from last year despite a stubbornly sluggish economy as cheap financing deals bolster sales of gas-guzzling sports utility vehicles (SUVs).
The supply crunch could make the U.S. more dependent on gasoline imports, particularly from Europe, but refinery troubles like Nerefco's half-shutdown of its large Rotterdam refinery Thursday could crimp those supplies.
U.S. refining firms, meanwhile, are drawing up plans to shut down production units for seasonal repairs and maintenance this winter, further reducing the industry's ability to boost inventories for the nation's voracious drivers.
Average U.S. pump prices for regular gasoline have already climbed more than 6 cents in a month to $1.46 a gallon, up from $1.11 a gallon a year ago, as the cost of crude oil hovers just below recent two-year highs above $33 a barrel, according to the American Automobile Association (AAA).
MIDDLE EAST LAG
While producers in the OPEC cartel have pledged to make up any supply shortfall, extra supplies from the Middle East take six weeks to arrive, by which time the lack of shipments from nearby Venezuela is likely to have drained U.S. stocks.
U.S. gasoline supplies have so far managed to keep in line with last year's levels at about 206 million barrels. But further run cuts by refiners who are already operating at a meager 90 percent of capacity due to the loss of Venezuelan oil could swiftly change the landscape.
"There are a huge number of variables, many of which can move the price up or down rather quickly," said John Felmy of the American Petroleum Institute, a leading industry trade group. "We remain concerned by the situation and are monitoring the data closely."
Felmy added that uncertainty in the gasoline industry is intensified by regional environmental regulations, including California's phase out of additive MTBE and certain "boutique" standards elsewhere in the country that make it harder for refiners to supply their markets.
A cold winter this year could also mean tighter gasoline supplies by forcing refiners to focus their production efforts on heating oil at the expense of motor fuel. Heating oil supplies are running 8.5 million barrels below last year's levels.
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