Blame for Next Oil Crisis Should Fall on Energy Department

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Blame for Next Oil Crisis Should Fall on Energy Department Portland Press Herald

August 30, 2000

Call me Chicken Little if you must, but the sky's falling.

The issue is home heating oil and the through-the-roof prices that analysts are predicting for the upcoming winter. Even if the heating season turns out to be mild, as the current Farmer's Almanac is predicting, Maine residents can expect to pay about $1.80 a gallon for No. 2 oil, according to a recent news account. And if the winter turns severe, regional storage tanks could run dry for short periods of time.

"I'm saying the outlook for the consumer is bleak," Kleen Oil Co. owner Charlie Tanner recently told a reporter. "Traditionally, now is when oil is at its lowest, and I've never seen it this high this early in the year."

When oil dealers start recommending that home owners buy an extra fuel tank and stock up now, it's time to pull out the worry beads.

Last winter - which, despite local impressions, was the warmest on record since the government began collecting such data 105 years ago - was a dry run for what may be in store.

In late January, prices for home heating oil started to skyrocket. Don't worry, experts told us. A cold snap caught refiners by surprise. After two mild winters, they had reduced their inventory levels in the Northeast by 46 percent, and the sharp price increase simply reflected the tight supply.

In a typical free market, crude oil would begin to flow from oil-producing nations to take advantage of the favorable pricing. Refiners would divert more of the crude from gasoline production into home heating fuel production. Supply would increase, prices would stabilize, and the good people of the Northeast could once again purchase oil and food at the same time, instead of choosing between the two.

That's the story Energy Secretary Bill Richardson constantly pitched, even when the good people of the Northeast watched their home heating bills climb even higher in February. By the middle of the month, the average price in Maine was $1.78 per gallon. The cost of a barrel of crude had nearly tripled, from about $11 to $30. Congressional delegations and all six New England governors were forced to beg for additional federal heating-oil aid for their low-income and elderly residents, while some called on Washington to release oil from the nation's strategic petroleum reserve to drive prices downward.

No way, Richardson said. "The United States very strongly believes that market forces should dictate prices."

Never mind, of course, that a cartel of oil-producing countries essentially fixes the price of oil without regard to supply and demand. Never mind, of course, that for most home heaters in the Northeast, the demand for oil products is inelastic - that is, regardless of the price of oil or gas, we still have to use it to heat our homes and fuel our cars. Never mind, of course, that seven out of 10 homeowners in Maine require oil to heat their homes and that switching to alternative fuel sources is virtually impossible to do.

In other words, Richardson's concept of a free market system simply doesn't hold true when it comes to oil and the Northeast. Suppliers aren't competing on price, price doesn't drive demand and purchasers are essentially a captive market.

"There are no free energy markets," says Charlie Higley, an energy lobbyist with Public Citizen. "Oil companies and cartels - the suppliers call the shots. Individuals have no choice in the matter."

Former Rep. Joe Kennedy, who now runs a nonprofit company that sells discounted oil to low-income people, offered Richardson a primer in economics. "If you allow the supply to get this low without any federal regulation, you're in trouble," he warned the energy secretary last winter. "It's just simple economics."

Kennedy urged that the federal government set mandatory inventory levels that would prevent a repeat of the winter of 1999-2000. Instead, the Clinton administration bowed to political pressure this summer and agreed to set up a 2 million barrel Northeast oil reserve - maybe enough to get the region through a short-term supply disruption, but too little to have any real impact on pricing.

Now it's August, and oil inventories are substantially lower now than they were 12 months ago - while prices are 60 percent higher. The federal government, and Richardson's Energy Department in particular, have failed to take the bold steps needed to ensure that oil will be available and affordable when January's winds blow coldly. Minimum oil inventory levels, fuel mileage standards, and incentives for energy efficiency have been ignored.

The good people of the Northeast will know who to blame when their mid-winter oil bills arrive. That's assuming there's enough home heating oil to deliver

http://denver.petroleumplace.com/egatecom/scream/2000/08/30/eng-blethenmaine_portland/eng-blethenmaine_portland_113457_229_802594364155.html



-- Martin Thompson (mthom1927@aol.com), August 30, 2000

Answers

If Hollywood wants to make a movie about what is going on today in this country it should be called: "Clueless in D. C."! I have never seen such a lack of national leadership on important issues: energy, immigration, etc.

The responsiblity has to lie with the Clinton Administration. As Harry Truman had on his desk: the buck stops here.

-- K (infosurf@yahoo.com), August 31, 2000.


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