OPEC Boost in Output Won’t Cut Gas Prices

The Organization of Petroleum Exporting Countries agreed Wednesday to pump nearly 3% more oil, but supply problems and extremely tight inventories will prevent a drop in gasoline prices any time soon.

Oil experts said the OPEC supply increase of 708,000 barrels a day starting July 1 is not enough to slake the world’s growing thirst for petroleum and its products and will bring no immediate antidote to high fuel costs.

U.S. gasoline prices are being held up by several factors in addition to the price of the crude oil used to make it, including low fuel inventories, environmental regulations, supply problems, market speculation and taxes.

“It’s too little, too late to really rescue the gasoline market this season,” said Bob Christensen, energy analyst with First Albany Corp. “But we could see some easing by the end of summer.”

The Clinton administration greeted OPEC’s announcement with enthusiasm and held out hope for lower oil and gasoline prices.

“We’re pleased that they listened to the arguments that we made,” said U.S. Energy Secretary Bill Richardson, who has been quietly talking to OPEC members in recent weeks, trying to convince them that dwindling inventories showed how much the world needed more oil.

The latest output boost, which follows a 1.7-million-barrel daily increase in April, also raises concerns about how much more oil OPEC will be able to pull from the ground to satisfy next year’s even higher projected energy demands.

Facing pressure from the United States and Europe, OPEC ministers voted Wednesday in Vienna on a middling production increase to 25.4 million barrels a day of crude oil from the current target of 24.692 million barrels a day, excluding Iraq. (Cartel member Iraq, which is excluded from quota negotiations because of U.N.-imposed sanctions, exports slightly more than 2 million barrels of oil a day.)

In addition, non-OPEC oil-producing countries Mexico and Norway probably will kick in 200,000 or 300,000 more barrels of daily production, OPEC officials said. Mexico said later Wednesday that it will raise daily exports by 75,000 barrels.

Acknowledging that cartel members had been exceeding their official quotas, the extra 1 million daily barrels of OPEC and non-OPEC production probably will add between 600,000 and 700,000 net barrels to the world market, officials said.

Oil analysts described those figures as somewhat high, and several pegged net new production at 500,000 barrels a day or less. With demand rising worldwide, that new production probably will be absorbed quickly, they said.

OPEC, excluding Iraq, last month produced 25.18 million barrels of oil a day, or 488,000 barrels above the official production target, according to the International Energy Agency, a Paris-based oil watchdog. OPEC supplies nearly 40% of the world’s petroleum demand of about 76 million barrels a day.

“It’s OPEC-omania today,” said Phil Flynn, senior energy analyst with Alaron Trading Corp., a Chicago-based brokerage. “The market doesn’t seem to know what to make of it yet,” with oil prices dropping immediately after the announcement but rebounding later in the day.

August contract West Texas intermediate crude oil, the U.S. benchmark, rose 72 cents Wednesday to $31.37 a barrel on the New York Mercantile Exchange. On Tuesday, its last day of trading, the July futures contract reached $33.40 a barrel--the highest price since early March, when crude topped out at a nine-year high of $34.13.

U.S. gasoline prices, which in recent weeks have roared to record highs not accounting for inflation, should eventually decline because of the extra oil in world markets, Richardson said.

“Hopefully, this will have a good psychological effect on the market soon,” Richardson said. “Hopefully, it will mean decreases in gasoline prices, but that’s not certain.”

The Federal Trade Commission has launched an investigation of a sudden increase in retail gasoline prices in Chicago and Milwaukee, where motorists are paying more than $2 a gallon. Self-serve regular gasoline hit an average of $1.681 nationwide Monday--or about 56 cents higher than a year ago--and $1.618 in California, according to a weekly survey by the Energy Information Agency, a statistical and research arm of the Energy Department.

The U.S. oil industry Wednesday touted a report by the Congressional Research Service that blamed supply problems for about half the recent 50-cent-a-gallon leap in Midwest gasoline prices. The report attributed the remaining 25 cents to the cost of cleaner-burning gasoline that was required in about one-third of the country starting June 1.

Rep. F. James Sensenbrenner Jr. (R-Wis.), who released the report as chairman of the House Science Committee, said it made a strong case for federal regulators to make a temporary exception to the requirement for such fuel--known as reformulated gasoline, or RFG.

“Such an action would give the public some respite from these untenably high prices without harming our environment,” he said.

With so many factors at work, OPEC’s action will have only limited immediate effect on the price of gasoline, analysts said.

But economist Alan Struth of Honeywell Hi-Spec Solutions, a Houston oil consulting firm, noted that refineries are beginning to make a dent in the inventory problem, producing more gasoline, even the difficult-to-refine reformulated gas.

“The worst may be over,” said Struth, who formerly worked for Phillips Petroleum of Bartlesville, Okla., the nation’s eighth-largest oil company.

The added OPEC production hacks away at a relatively small reserve of excess capacity of perhaps 4.6 million barrels a day held by the 11-member cartel, analyst Christensen said.

“I would argue that we are really robbing Peter to pay Paul. By that I mean some of the excess production capacity that we were counting on for 2001 is being put into the 2000 marketplace,” he said.

On the campaign trail Wednesday, Vice President Al Gore once again called for an antitrust investigation of possible “price gouging and collusion” behind the sudden increase in gas prices.

“I am deeply concerned about the conduct of the oil companies, which may have led to these unreasonable price hikes,’ said the presumed Democratic presidential nominee, speaking at a carpenters union gathering in Des Moines.

As Gore was trying to focus attention on oil companies, his Republican rival for the presidency, Texas Gov. George W. Bush, criticized the vice president--and the Clinton administration in general--for failing to sharply define American interests.

“This is an administration devoid of an energy policy,” he told reporters after appearing Wednesday at Puente Learning Center east of downtown Los Angeles.

“We’re dependent upon crude,” Bush said. “I would hope the administration would convince our friends in OPEC to open the spigots.”

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Times staff writers Cathleen Decker, Nick Anderson and Matea Gold and Reuters news service contributed to this report.