Oil Hits $31 a Barrel; Lawmakers Seek OPEC Sanctions
U.S. oil prices skyrocketed to a nine-year high Wednesday as members of Congress demanded that the Clinton administration cut off U.S. assistance and arms sales to OPEC members to prod the cartel to end production cutbacks and pump more oil.
Energy Secretary Bill Richardson, newly returned from a weeklong energy diplomacy trip, said he was confident that the Organization of Petroleum Exporting Countries would soon agree to a “substantial” increase in oil production when the group meets March 27.
But the oil market shrugged off his comments as U.S. crude oil futures shot up a breathtaking $1.34 to close at $31.77 a barrel, the highest since the Gulf War nine years ago.
The price increase was fueled mostly by new U.S. government data showing another tumble in inventories and traders’ skepticism that OPEC is willing to increase production enough to make a difference.
The U.S. oil market is bracing for a spring gasoline shortage that could propel retail prices as high as $2.50 a gallon, according to some industry analysts. The nationwide average price hit a record high of $1.42 a gallon this week.
A key meeting of Saudi Arabia, Venezuela and Mexico was scheduled for today in London to discuss a proposal to present to the cartel later in the month. The trio was expected to propose an initial 1.2-million-barrel-per-day increase, with an additional 500,000 barrels per day if needed to ease the U.S. benchmark oil price back to around $25 a barrel, OPEC delegate sources in London told Reuters.
World consumption of oil now outstrips production by about 2 million barrels a day, Richardson told the House International Relations Committee. That imbalance has drained world inventories and jeopardizes world economic growth.
Richardson faced intense criticism from U.S. lawmakers, who want the administration to punish OPEC and other major oil-exporting nations by halting U.S. assistance and arms sales.
Another option is for the United States and other consuming nations to file an international antitrust lawsuit against OPEC for its price-fixing activities, said Rep. James A. Leach, an Iowa Republican who sits on the panel and is chairman of the influential House Banking Committee.
Richardson urged the lawmakers to give energy diplomacy a few more days to work.
“It’s important that we be prudent and not overreact, and see the trends over the next few days,” he said in response to questions. “We have to play it smart.”
Both Republican and Democratic members of the panel also urged the administration to use some of the 570 million barrels of crude oil stashed in the Strategic Petroleum Reserve to ease prices.
Richardson repeated President Clinton’s remarks earlier this week that the United States has not ruled out using the stockpile.
“If they [OPEC] make a decision on March 27 that is detrimental to America’s interests, then the president has a number of options,” Richardson said. “We’re . . . waiting for the outcome of the OPEC meeting.”
Clinton was to meet with Richardson on Wednesday evening to discuss the energy chief’s talks with oil ministers of Saudi Arabia, Kuwait, Norway, Mexico and Venezuela. Richardson described his talks with the oil ministers as successful in persuading them that lower prices are in the best interests of both producing and consuming nations.
But lawmakers complained that the talks failed to win any clear promises from oil producers.
“We are being screwed by people we are defending,” said Rep. Dana Rohrabacher, a Republican from Huntington Beach, referring to OPEC members Saudi Arabia and Kuwait.
The Saudis have been one of the world’s biggest buyers of U.S. arms during the last two decades, although international arms purchases by Saudi Arabia have slowed somewhat in recent years because of cash-flow problems caused by falling oil prices.
Other lawmakers complained that Mexico, a NAFTA partner of the United States, is unwilling to independently raise oil output. Mexico is not a member of OPEC, but a year ago agreed to cooperate with the cartel.
