Plentiful US supplies of crude oil and refined products don't justify a sharp spike in US retail gasoline prices in the wake of terrorist attacks on US targets, industry officials and analysts said last week.
Still, President George W. Bush should "send a message to the world" by immediately announcing plans to dip into the nation's Strategic Petroleum Reserve if necessary, said George Gaspar with Robert W. Baird & Co. in Milwaukee.
"He should make it clear that's a tool that we stand ready to use. And he should immediately make the necessary connections with the oil companies to use it," Gaspar said. "When President Bill Clinton last opened that reserve, he had no arrangements in place with the oil companies, and it took weeks to move that oil."
President Clinton announced plans to draw down crude form the SPR in September 2000 to ease what was then a tight heating oil market in the Northeast.
Immediately after terrorist attacks in New York and Washington, DC, Alí Rodríguez-Araque, Organization of Petroleum Exporting Countries secretary general, announced that the group's member countries "remain committed" to providing enough oil to satisfy world market demands.
He refuted suggestions that some OPEC members could use oil as a weapon against the US and said the group is prepared to ramp up its spare production capacity if necessary to stabilize world oil markets. OPEC instituted a production cut of 1 million b/d on Sept. 1.
Gene Gillespie, analyst with Howard, Weil, Labouisse, Friedrichs Inc., said, "Obviously, the impact on crude prices will depend on what type of response [comes] from the US and where that response is, but I think that if crude prices were to move up, OPEC would reverse their Sept. 1 production cut. That would take care of any concerns about supply shortages. But inventory levels worldwide are adequate, particularly of product. I think refiners are going to continue to run pretty hard."
Fear of flying owing to the quartet of skyjackings that were part of the terrorist attack on the US will probably lead an overall decline in demand for transportation fuels, Gillespie contends: "So demand for transportation fuels, at least in this country, which is the largest consumer of transportation fuels, could be down pretty sharply in the short term, in the area of 10-15%.
"I don't see any real major sustainable upward pressures, particularly for product. The companiesellipsehave frozen wholesale gasoline prices at [Sept. 10] levels. There shouldn't be dramatic run ups at the pumps; if there are, it's the action of people who are pirating based on recent events."
Gasoline price spikes
While oil companies, industry associations, and government agencies all sought to reassure the US public that fuel supplies were ample, there were nonetheless sporadic reports of long service station lines and allegations of gasoline price gouging.
Many of the incidents apparently were spawned by panic buying by motorists or supply fears by retailers.
A service station operator in Oklahoma City, for example, hiked the price of unleaded gasoline to $5/gal after a supplier told him it was uncertain when the next shipment would be available and at what price.
Energy Sec. Spencer Abraham said, "At my direction, the Energy Information Administration has investigated these reports and the supply situation, and we can report that there has been no supply disruption to justify such prices."
The American Automobile Association also urged retailers not to impose large price increases. Nationwide, the retail price of unleaded gasoline was $1.54/gal last week, said AAA officials.
ExxonMobil Corp. and BP PLC moved quickly late Sept. 11 to reassure marketers that supplies would not be hampered outside of New York City and that there was no need to stockpile gasoline.
"We cannot control what independent dealers or distributors do, but we are encouraging them to act responsibly," ExxonMobil officials said Sept. 12.
Equilon Enterprises LLC and Motiva Enterprises LLC, marketers of Shell Oil Co. and Texaco Inc.-branded fuel throughout the US, pledged Sept. 12 to hold gasoline and diesel fuel prices steady "for the next couple of days." That included retail prices at company-operated stations and wholesale prices to independent dealers.
"We encourage consumers to buy gasoline as they normally would to minimize sharp swings in gasoline demand and availability," company officials said in a joint statement. "We encourage our thousands of independent dealers and wholesalers to exercise restraint in their pricing decisions."
Chevron's stance
Chevron Corp. last week said it decided to hold its wholesale gasoline prices at then-current levels through Sept. 12. "We've shown restraint and are assessing the market," a spokesman said.
"This is an unprecedented situation," the company said. "Financial markets are closed, air travel is suspended, and the public is understandably anxious. However, it is clear to Chevron that adequate supplies of all transportation fuels are available. We encourage customers to follow their normal purchase patterns.
"We are particularly incensed where any retailer is taking advantage of customers through extraordinary price increases. We strongly urge all retailers to do everything in their power to maintain normal marketplace pricing, since that is in the best interest of our customers and our nation. We have and will continue to exercise restraint in our pricing decisions during this difficult period.
Unjustified spikes
Gaspar called on other major integrated oil companies to freeze gasoline prices to stem such an "unjustified" spike in retail pump prices. Major US refiners took such a step to stop a similar price fly-up at the start of the Desert Storm attack on Iraq in January 1991. "I would expect no less of them now," Gaspar said.
"There is no justification for a runup in retail prices. Governors in the states where this is happening should demand that station operators show financial justification for such price hikes," he said.
"Gasoline and diesel fuel inventories are adequate to meet demand, and refinery production remains strong," the American Petroleum Institute said last week.
"We are aware of reports of lines forming at gas pumps in some sections of the country and of isolated panic-related incidents caused by fears that a disruption in the gasoline supply system could lead to higher prices or shortages. There are allegations that some gasoline stations are taking advantage of the situation to increase their prices," said API officials.
"API and its members do not condone and, in fact, strongly denounce any attempt to use this crisis to take advantage of consumers. If there is any illegal activity, those responsible should be prosecuted to the fullest extent of the law," they said.