Q & A : Oil Release Likely to Have Little Effect

President Clinton’s decision to release 12 million barrels of oil from the Strategic Petroleum Reserve over a five-month period may sound like a welcome relief to consumers, who have seen the price of gasoline rise to as much as $2 a gallon. The extra supply is meant to force prices downward, but some indicators make that prospect seem unlikely.

Here’s a look at Monday’s decision to increase the supply of oil, what led up to it and whether it will have any impact at the gas pump:

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Q What is the Strategic Petroleum Reserve?

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A The U.S. Strategic Petroleum Reserve is a government stash of 585 million barrels of oil held in underground salt domes in Texas, Louisiana and Mississippi. The reserve--like smaller stockpiles in other oil-importing countries--was created in 1975 after the nation suffered its first oil crisis, because of an an Arab oil embargo.

In 1990, the federal government released oil from the reserve for the first time as a test to see what would happen to prices. Ironically, the move resulted in a $1-per-barrel increase in prices because oil buyers around the world saw the sale as a signal that the U.S. foresaw an impending supply shortage. Within hours of the start of the Persian Gulf War in 1991, the government announced plans to release 5 million barrels of oil from the reserve, but most of it went unclaimed.

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Q How much is 12 million barrels of oil?

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A About 4 million to 5 million barrels less than the amount of oil consumed in the United States each day. Roughly 60 million barrels of oil are produced around the world on a daily basis. When put into context, the release of an additional 12 million barrels of oil from early May to late September amounts to about a 1% increase in supply.

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Q Will gasoline become cheaper soon?

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A Probably. Energy Secretary Hazel O’Leary predicted that prices will come down by late June or the Fourth of July at the latest--in line with the forecasts of analysts. But they doubt that the additional oil will have much to do with it.

“It’s not going to do anything, and it’s not going to help the citizens in California in particular,” said Philip K. Verleger Jr., vice president and energy economist at Charles River Associates in Washington. Nonetheless, he predicted that prices will settle down in another four weeks and then remain tight throughout the summer.

Scott Loll, a spokesman for Arco in Los Angeles, said he is optimistic that the extra supply will help push prices down, but he said it is impossible to say for sure. The better gauge, he said, is to watch the price of crude oil futures on commodity markets.

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Q Why did Clinton do this then?

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A His hand was forced by Congress, which made the sale of $227 million worth of standby oil--about 12 million barrels--to pay the administration’s education programs. But that turned out to be a useful mandate for Clinton politically, as elected officials scramble to exploit the uproar over gasoline prices.

On Monday, Clinton’s probable campaign opponent, Senate Majority Leader Bob Dole (R-Kan.) and other Republicans called for a repeal of the 4.3-cent hike in the federal gas tax that was passed as part of Clinton’s 1993 tax and deficit-reduction package.

“The amount they’re going to sell is such a drop in the bucket that it won’t make any difference long-term or at the pump,” said Elaine Levin, a Washington-based broker with Dean Witter. “It’s just like the move to sell [reserve] crude during the Gulf War; it’s a symbolic, political move only.”

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Q Are gasoline prices rising because the new, cleaner gasoline mandated by the California Air Resources Board is more expensive to produce and deliver?

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A That’s part of the reason, but it’s only one of many factors. Oil refiners said the biggest single reason for the dramatic change is that prices for crude oil on the world market have risen between $6 and $7 per barrel, which translates into about 12 to 16 additional cents per gallon at the pump.

In California, a string of accidents at local refineries forced cutbacks in production, and that drop in supply pushed prices higher. Nationally, the raising of the speed limit from 55 to 65 mph is contributing to an increase in consumption--and therefore prices--because cars are less fuel-efficient at higher speeds. The growing popularity of sport-utility vehicles, which get fewer miles to the gallon than other cars, has also contributed to an increase in consumption.

Plus, the long, cold winter the rest of the country experienced meant that more oil was converted to home heating fuel and less to gasoline. The American Petroleum Institute reported domestic gasoline stocks for the week ended April 19 were 203.5 million barrels--near 20-year lows.

“Each of these little things adds a little” to the price of a gallon of gas, Verleger said. In isolation, the introduction of California’s cleaner gasoline would have barely registered with consumers watching their pocketbooks. Instead, “everything’s going wrong at the same time.”

Times wire services contributed to this report.

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