EIA: U.S. OIL COMPANIES HAVE SHOWN RESTRAINT ON PRICES

The Energy Information Administration says U.S. oil companies have exercised price restraint following Iraq's Aug. 2 seizure of Kuwait. Calvin Kent, EIA administrator, said higher prices for gasoline and other petroleum products have not resulted in huge profits. EIA pointed out that oil company profits were mixed in July, August, and September. Companies processing mostly, their own crude reported profits and those that had to buy products reported losses. For companies classified by EIA

Dec. 3, 1990

3 min read

The Energy Information Administration says U.S. oil companies have exercised price restraint following Iraq's Aug. 2 seizure of Kuwait.

Calvin Kent, EIA administrator, said higher prices for gasoline and other petroleum products have not resulted in huge profits.

EIA pointed out that oil company profits were mixed in July, August, and September. Companies processing mostly, their own crude reported profits and those that had to buy products reported losses. For companies classified by EIA as majors, profits increased less than 2%.

PRICE RESPONSE

EIA said sharp price increases following the invasion by Iraq were caused by uncertainty in the market as to whether other nations would increase production to offset a supply shortfall and whether a war would spread to other countries in the Persian Gulf, source of most of the replacement oil for supplies lost as a result of a United Nations embargo.

Kent said retail gasoline prices in the U.S. did not rise as rapidly as crude prices, particularly immediately after the invasion. Retail prices had almost caught up with crude by October due to declines in crude oil prices.

EIA found that retail prices in the U.S. did not increase as fast as they did in Europe and Japan due to higher initial prices in those countries and lower dependence on oil relative to total economic output. When crude prices declined, products prices also fell more rapidly in Europe and Japan than in the U.S.

Immediately after the invasion, demand for gasoline and other refined products increased due to building of secondary and consumer stocks.

Despite near record worldwide stocks of oil, prices for crude and products rose following the invasion because of the increased demand for products and uncertainties regarding replacement supplies and the spread of the invasion.

EIA said crude prices remained high because of concerns about fourth quarter demand, vulnerability of replacement supplies in the Middle East, and exhaustion of world excess production capacity.

"Despite large stocks, spot heating oil prices rose at virtually the same rate as did crude oil," EIA said.

"The approaching winter heating season, plus remembrance of the problems associated with the preceding year's cold snap, supported the price increases."

FUTURES MARKETS

The report said there is no evidence that speculators in futures markets destabilized spot crude oil and product markets since the invasion.

Speculative activity did not increase, it added.

EIA said participants in the futures market in the 90 days following the invasion were mostly refiners, airlines, and chemical companies who wanted to guarantee prices for their consumers.