Clinton Acts to Cut Gasoline Prices by Tapping Reserve
President Clinton, moving to blunt Republican efforts to capitalize on public anger at rapidly rising gasoline prices, on Monday ordered the sale of as much as 12 million barrels of oil from the U.S. emergency petroleum reserve.
“Over the last several weeks, I have been concerned about the rise in gasoline prices at the pump,” Clinton said in a written statement issued late Monday.
He said that he had directed Energy Secretary Hazel O’Leary to take immediate steps to begin the “orderly sales” of 400,000 to 600,000 barrels of oil a day.
The oil will begin moving on the market next month but the total amount of the sale represents less than a single day’s U.S. consumption and the impact on gasoline prices is expected to be a few pennies a gallon at most.
Although the White House sought to claim credit for rapid response to consumer wrath over gasoline prices, Clinton was forced into the sale by Congress, which last week ordered him to sell $227 million worth of excess petroleum stocks to pay for administration education programs.
But the administration took pains to make a virtue of necessity, quickly announcing the sale with considerable fanfare even as Republicans were seeking to repeal the 4.3-cents-a-gallon gasoline tax that Clinton pushed through Congress in 1993 as part of his deficit-reduction package. The total federal tax on gas is 18.3 cents a gallon.
Political jockeying over gasoline prices thus joins the debate over an increase in the minimum wage as issues for high-decibel election-year argument.
Clinton on Monday also ordered O’Leary to investigate why gasoline prices shot up in recent weeks and report back to him in 45 days.
“As part of that analysis, I am asking her to evaluate the expected market prices for the remainder of the peak summer driving season,” Clinton said in his statement.
He added: “I believe these are the appropriate steps to take at this time. My administration will continue to monitor developments in this market in the coming weeks.”
A senior Energy Department official said that the causes of the price run-up were largely known and quite obvious: high oil consumption during the unusually cold winter, low inventories at refineries and lower worldwide production in anticipation of Iraqi oil coming onto the world market if the United Nations allows Baghdad to make limited oil sales on humanitarian grounds.
That prospect has made companies reluctant to buy crude oil at the prevailing high prices, which has kept supplies low.
Constantine Fliakos, chief oil industry analyst at Merrill Lynch Research in New York, said the impact of the proposed sale would be negligible, given the domestic consumption of 17 million barrels a day.
He said Clinton’s announcement “absolutely” was driven by politics. “He obviously recognizes that gasoline prices going up could be a political liability in an election year. I’m surprised they didn’t figure it out earlier,” he said.
The additional oil from the reserve sale will increase the supply in the United States only by about 1%, said Philip K. Verleger Jr., vice president and energy economist with Charles River Associates here.
That means the release of the additional oil will make barely a dent in gasoline prices, he said. But he predicted that prices would stabilize on their own in about four weeks.
Referring to the complex set of factors that has driven prices up in the last several weeks, Verleger said: “This year, everything’s going wrong at once. We’d like to find a single villain, but there are lots of little things.”
In California, where prices for self-serve regular unleaded are averaging about $1.50 a gallon--up more than 30 cents since midwinter--refiners have begun making a cleaner-burning gasoline mandated by state officials as of June 1. The extra refining needed to produce the new gasoline adds 5 to 8 cents to the cost of a gallon, the oil companies say, making the state’s gasoline the most expensive in the nation.
Meanwhile, delays caused by problems in increasing production at the state’s refineries tightened available supplies of the new fuel. And demand surged as California’s farmers got out in the field earlier than usual, while fires and other accidents at two big refineries further crimped production.
American pump prices are currently at their highest levels since the Persian Gulf War. Nationwide, prices have jumped 14 cents a gallon in the last year to an average of $1.36 a gallon.
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In response to the president’s announcement, Senate Majority Leader Bob Dole (R-Kan.) said: “I am pleased my letter urging repeal of President Clinton’s gas tax got his attention.”
But Dole--Clinton’s near-certain GOP challenger in November--urged the president to do more to ease gasoline prices.
“He should also take action which will have an immediate and permanent effect on gas prices--join us in repealing the 4.3-cent-per-gallon gas tax,” Dole said in a statement.
Democrats, too, sought political advantage from motorists’ distress.
“Just before the tourist season begins, it’s interesting that these prices would go as high as they are,” said Senate Minority Leader Tom Daschle (D-S.D.). “I have a feeling it has a lot more to do with profits than it does with taxes.”
Bill Frenzel, a former Republican congressman and a political analyst at the Brookings Institution, said that by embracing the gas tax repeal, Dole is attempting to benefit from the same kind of political boost that Democrats and the president have received through their initiative to increase the minimum wage. Both initiatives are “platform stances that they don’t necessarily want to achieve tomorrow because they make pretty good issues while they stay alive,” Frenzel said.
A top Energy Department official, who declined to be identified, told reporters that the sale of the reserve oil, expected to begin May 13, would have a modest “softening” effect on gasoline prices. He added that the additional supplies would not be seen at service stations until the end of May at the earliest.
The Strategic Petroleum Reserve, administered by the Defense Department, currently holds about 597 million barrels of crude oil, stored mainly in salt domes in the South and Southwest.
The oil that will be made available for this sale is buried in salt domes at Weeks Island, La.
The 72 million barrels that have been stored there are currently being transferred to another facility in Texas. The oil to be sold will simply be diverted from the millions of barrels that are being transshipped.
Jan Speelman, executive director of Irvine, Calif.-based Automotive Trade Organizations of California, a trade group of 2,000 service station operators around the state, was dubious about the announcement and uncertain of its impact on prices. Dealers, including Speelman’s group, have been critical of oil companies for keeping supplies low.
“Who is going to refine these millions of gallons? To whom does President Clinton hand them? Is it a lottery? The bottom line is, it’s a great sound bite from a political standpoint, but the reality is I don’t know how it’s going to work,” Speelman said.
Earlier in the day, Sen. Phil Gramm (R-Texas) unveiled his legislative strategy for repealing the gas tax.
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He plans to offer the gas tax repeal as an amendment to the noncontroversial “taxpayers’ bill of rights,” which the House passed, 425 to 0, earlier this month to ease taxpayer dealings with the Internal Revenue Service.
“We have an opportunity right now to cut the cost of gasoline by a dollar a tank,” Gramm said in a Capitol press conference on his proposal to cut the gas tax.
Gramm would compensate for revenue lost because of the gasoline tax cut by reducing welfare benefits to legal immigrants by $14 billion and by using $11.25 billion in revenue from the ongoing auction of broadcast spectrum rights.
Times staff writers Elizabeth Shogren in Washington, Chris Kraul in San Diego and Karen Kaplan in Los Angeles contributed to this story.
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A closer look at Clinton’s move, what it means for prices. D1
