No Shortages of Gasoline Expected Unless War Erupts

Fuel distributor Brian Mock decided that handholding was in order last month after some jittery customers began placing larger than normal orders.

“We told them that . . . we are going to deliver (on our contracts),” said Mock, who operates out of Irvine. “So topping off is just not warranted. They came around after that.”

Mock’s advice is being echoed by energy executives and analysts. Prices will probably be high and some fuel inventories tight, they said, but no shortages are expected this winter unless all-out war occurs in the Mideast.

However, they tempered their confident statements by adding that a wave of panic buying and hoarding could throw the delicate balance between supply and demand temporarily out of whack, creating spot shortages and breeding even further panic.

“If people expect the worst, they will hoard gasoline, and it ends up a self-fulfilling prophecy,” said Harry Johnson, who heads the forecasting and pricing operations at Los Angeles-based Atlantic Richfield Co.

Fears of a worldwide oil shortage this winter took center stage earlier this week when Department of Energy officials testified before the House Government Operations Committee. “The last half of the fourth quarter gives us concern,” said Assistant Energy Secretary John J. Easton Jr. “We see the potential for greater uncertainty as winter develops.”

Federal officials and some other analysts expect the worldwide flow of oil to fall short of demand by as much as 500,000 barrels a day this winter as a result of the embargo of Iraqi and Kuwaiti crude shipments. Some analysts foresee an even wider gap.

But other oil industry economists, executives and consultants say those estimates are based on worst-case scenarios that may never develop. Furthermore, some basic economic principles might work in favor of reducing oil demand and easing the threat of shortages.

“I could see a (gasoline) shortage if the Middle East situation literally blew up,” said Johnson at Arco. “I would be the most surprised person on the face of the earth if gasoline was short in the wintertime.”

Johnson and others remain confident--despite evidence that gasoline supplies are tight and that refineries are working flat-out the world over. Later this month, the flow of imported oil into the United States is expected to slow as the embargo against Iraqi and Kuwaiti supplies finally makes itself felt.

Some other oil-producing nations--notably Saudi Arabia and Venezuela--have stepped up production. But the additional flow won’t arrive in the United States for three to eight weeks, analysts said, and may never totally make for the production lost to the embargo. Kuwait and Iraq were producing up to 4.3 million barrels of crude a day when the worldwide embargo was imposed last month.

U.S. oil companies must also contend with worldwide demand for crude and refined fuels. Some U.S. refined gasoline is being siphoned to Europe, where prices are higher, and Asian nations, which were more highly dependent on Iraqi and Kuwaiti oil and refined fuels than the United States, are also scrambling to offset the shortfall.

Despite these concerns, industry officials say U.S. crude inventories are high and can be drawn down without much concern. Inventories of crude oil fell 4.4 million barrels to 372.2 million last week, according to the American Petroleum Institute. Still, supplies remained well above the 335.8 million barrels reported at the same time last year.

There is also the U.S. Strategic Petroleum Reserve of nearly 600 million barrels, which can be tapped in case of an emergency. There are, however, growing concerns about the speed with which its oil could be extracted and distributed and about the ability of refineries to use the crude, much of which is heavy and difficult to refine.

But, “generally speaking, it shouldn’t be that bad,” said Ken Haley, manager of energy forecasting for Chevron Corp. “Most people would agree that there is plenty of crude oil in tanks to tide us over in the crunch.”

U.S. stocks of gasoline are relatively tight at about 210 million barrels, but are within the comfort zone of many industry officials. Executives pointed out that demand for gasoline drops during fall and winter, allowing inventories to build up and refiners to switch to the production of home heating oil.

“As the peak driving season has gone by, with the Labor Day weekend, your concern turns to the heating oil side of it,” said Dennis Winters, senior associate in the oil service group of DRI-McGraw Hill, a consulting firm in Cambridge, Mass.

A cold winter would mean “a lot more usage of (heating) oil,” Winters said. “I don’t see the unavailability of home heating oil, but it will be more expensive.”

Analysts said supplies of jet fuel could also prove troublesome. “Jet fuel could be a pretty big problem, too, because military requirements are going up quite sharpely,” said Dillard Spriggs, president of Petroleum Analysis Ltd., a New York consulting firm.

The best defense against fuel shortages this winter is to let capitalism run its course, the economists said. The fact that prices will rise will put the brakes on demand--as should the sluggish U.S. economy. Economists point out that estimates of a 500,000-barrel-a-day worldwide shortfall do not take into account that rising prices will weaken demand.

What compounded the gas shortages of the 1970s were now-defunct government regulations that dictated prices and supply, economists say. “It is very hard to see how we can have a shortage of oil in a free market,” said Philip Verleger, visiting fellow at the Institute of International Economics in Washington.

But a free market could mean a sharp and painful rise in fuel prices, especially for users of home heating oil in the Northeast and Midwest. “That really impacts the poor and the elderly,” Winters said. “You do have to heat homes in the wintertime.”

But while industry officials are confident about oil supplies, they are less certain about human behavior. Panic buying and hoarding are triggered when consumers are focused more on their self-interest than on the common good, said Richard Feinberg, professor of consumer science and retailing at Purdue University.

“It is just simply a consumer perception that they themselves are better off by hoarding than not,” Feinberg said. “You are immediately rewarded for it but sacrifice long-term benefits. You have what you need.”

In contrast, those focused on the common good “give up (immediate) rewards for long-term benefits,” Feinberg said. “That’s harder to do.”

Media reports, spot shortages and signs of hoarding by neighbors can all lead to widespread panic.

Some oil companies saw signs as early as last month that motorists were beginning to buy more gasoline than normal, though demand seems to have eased a bit.

“We probably saw some topping-off activity here in August,” said Arco’s Johnson. “Demands were considerably higher than they were a year ago. That is not necessary.”

Under the worst-case scenario, if all motorists and industrial users began topping off their tanks every day, the nation would need 20% more oil over the course of a year, according to Dale W. Steffes of Planning & Forecasting Consultants in Houston.

Lower oil inventories “will not make as much a difference as the psychology of the consumer” when it comes to generating shortages, Steffes said. “If everyone started to fill that inventory, we would have an instant shortage. There is not enough crude to do it.”

“There are hundreds of millions of cars out there, and (topping off) does make an impact on the flow of supply,” said Haley at Chevron. “I’d hate to get an alarmist attitude. I don’t think it’s called for.”

With fuel accounting for less than 4% of an average household budget, economist Jason D. Bram at the Conference Board, a business research organization in New York, does not see much of a financial incentive for the typical consumer to hoard--even if prices continue to climb. “It doesn’t make it worthwhile to go to the trouble,” he said.