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To: Think4Yourself who wrote (67984)	6/9/2000 6:44:00 PM
From: Think4Yourself	Respond to of 95453

Gasoline is holding up prices, not any shortage of oil. Uncle Sam, Not OPEC, is the Culprit as Oil Sizzles By William Maclean LONDON, June 9 (Reuters) - Oil prices are high, so OPEC's to blame, right? Wrong. Consumers crying out for cheaper oil can justifiably forget the familiar culprit, for now at least, and point the finger at Uncle Sam instead. Markets have signalled for weeks that world prices are being kept on the boil by a sizzling U.S. gasoline market, not by any shortage of the raw material - crude oil - from the cartel. And prices could spike further without decisive action from Washington to ease tight gasoline supply pushing world crude prices back towards nine year highs. "U.S. gasoline is walking a tightrope and the market is mesmerised," said Peter Gignoux, head of the energy desk at Salomon Smith Barney. Traders are busy buying crude and selling gasoline to lock in forward differentials at their highest levels in memory. In such a lop-sided situation, output gaps from any fault at gasoline-producing U.S. refineries could send prices yet higher. "I'm not convinced we need more crude from OPEC," says David Stedman of Daiwa Research in London. "And even if we did get some more, it could be six to eight weeks before it arrives in the States." BOGEYMAN IN WASHINGTON The stakes are high as the Clinton administration faces calls from lawmakers to press the Organisation of the Petroleum Exporting Countries into raising supply to cool the markets. The cartel is a familiar bogeyman in Washington, where bad memories linger of 1970s turmoil and queues at gasoline stations when OPEC held the West to ransom in the Arab oil embargo. And it retains enormous influence, pumping over 60 percent of internationally traded oil and 40 percent of world output. In March a loud campaign of U.S. pressure succeeded in pressing OPEC into raising output to cool markets. But prices have since recovered as the gasoline situation has worsened. An OPEC hike might have no quick effect on U.S. gasoline prices because they are reponding to the launch of a new super-clean gasoline in the peak driving season amid low inventories. In addition, most new crude would be Middle East sour grades unsuitable for gasoline production. "To a large extent the U.S. is responsible for what the oil price is doing at the moment," said Mehdi Varzi at Dresdner Kleinwort Benson. SUPER CLEAN GASOLINE Washington on June 1 made a so-called Phase Two reformulated gasoline compulsory for a third of U.S. motorists, stoking worries that refiners would not be able to make enough of it. The U.S. Environmental Protection Agency gave supply-starved St. Louis temporary permission to sell below-grade gasoline, but has so far witheld such waivers for other troubled cities. Varzi doubts Washington will provide further waivers because this would offend environmentalists. Such a move would also anger refiners spending heavily preparing for the new rules. Those doubts are echoed in OPEC's heartland. Saudi Oil Minister Ali al-Naimi said in an interview with the Middle East Economic Survey on May 31 that the U.S. gasoline situation "will probably not be dealt with." But he cautioned that if Washington did not act "prices will continue to be influenced by shortages of gasoline." The issue is complicated by patents on reformulated gasoline owned by California-based Unocal Corp that have discouraged refiners from producing the new fuel to avoid royalty payments. On Friday the West's energy watchdog, the International Energy Agency, said there was a possibility of a price spike if there were breakdowns at refinery units going at full pelt. "There is considerable vulnerability to pipeline problems and refinery outages," the IEA monthly market report said. And experts are divided as to whether any more OPEC crude is needed globally just yet, with some seeing a likely hefty global inventory build in May offsetting a need for more oil now. But Varzi said that despite the U.S. gasoline situation, OPEC may come under renewed pressure to open the taps. He noted OPEC blamed high retail prices on taxes in consumer countries, but added: "Whatever the rights and wrongs, $30 oil will have an impact on demand and supply. "That level is not defendable long-term because consumers will complain and companies will invest higher cash flows in new production." X X X OPEC Chief Says High Oil Prices Give Wrong Picture MARGARITA ISLAND, Venezuela, June 9 (Reuters) - OPEC President Ali Rodriguez said Friday recent high oil prices gave a false impression that global supplies are tight, but with prices breaking above $28 a barrel, consultations. OPEC's export basket price broke above the $28 a barrel limit set by the cartel on Wednesday. But Rodriguez, speaking to reporters on the sidelines of an energy conference, said the expected 500,000 barrels per day output increase under OPEC's new price band mechanism was still under discussion. "Things don't always turn out in life as planned. At this moment there are some factors occurring that could give a false picture of market fundamentals ... We're carrying out a lot of consultations before putting the price band mechanism into effect," he said. Rodriguez said he had set no date or venue for a planned meeting with Saudi Arabia Oil Minister Ali al-Naimi ahead of OPEC's June 21 ministerial gathering in Vienna. He said he would meet OPEC Secretary General Rilwanu Lukman in the Austrian capital on June 19.