Administration Sees Potential for Oil Shortages Soon

Oil shortages from the embargo against Iraq and Kuwait may develop late this year, Bush Administration officials said Wednesday.

“The last half of the fourth quarter gives us concern,” Assistant Energy Secretary John J. Easton Jr. told the House Government Operations Committee. “We see the potential for greater uncertainty as winter develops.”

Despite record high inventories and commitments by some members of the Organization of Petroleum Exporting Countries to make up much of the Iraqi-Kuwaiti production, both government and private analysts said they expect a world shortage to develop by late November or early December.

The 21-nation International Energy Agency estimates that a shortage of 500,000 barrels a day could develop by December.

But private analysts say the shortage could be worse because demand for oil is expected to increase by several million barrels a day with cold weather.

“We are convinced that useable commercial crude oil stocks will be depleted by the end of October,” said Edward N. Krapels, president of Energy Security Analysis Inc. of Washington.

Krapels, whose company tracks world oil supplies, said the shortfall “could easily” reach up to 2 million barrels a day, possibly sending oil prices to above $40 a barrel.

“Anticipation of the shortage will result in a run-up of crude oil prices that will be translated into higher heating oil prices as the winter develops,” he said.

If so, consumers can expect a repeat of last winter, when an early, severe cold snap and transportation bottlenecks doubled home heating oil prices in some regions and tripled propane prices.

Krapels said the government could preempt a spiraling of home heating oil prices by immediately drafting a contingency plan to begin drawing down the nation’s 590-million-barrel Strategic Petroleum Reserve in November.

“A reasonable, organized, modest drawdown will send a signal not only to the oil industry and to consumers but also to the financial markets that the winter will be a difficult one, but not an economy-breaking one,” he said.