Analysts say Bush plan unlikely to lower gas prices

WASHINGTON – President Bush’s decision to suspend oil purchases for the Strategic Petroleum Reserve and authorize waivers of some environmental fuel regulations are designed to demonstrate government action about rising gas prices but are unlikely to slow the larger forces pushing prices past $3 per gallon, analysts said Tuesday.

The president also ordered federal agencies to watch for price gouging, insisting that he will not accept price “manipulation,” even though similar monitoring efforts shortly after Hurricane Katrina led to little enforcement against sellers.

Experts attribute the cost run-up to the nation’s shortage of refineries and a switch to more heavily blended gas during the summer months, along with uncertainties in the oil-producing nations of Iran and Nigeria and strong demand from China and India.

In such a turbulent and far-reaching global market, the marginal amount of additional oil available from Bush’s move will do little to lower the price at the pump, said Philip Verleger Jr., a Colorado energy consultant. “It’s like treating cancer with aspirin,” Verleger said.

The president will suspend daily purchases of oil for the national reserve this summer, freeing about 400,000 barrels of oil each week to be refined and sold at gas stations. The government also will delay until fall reclaiming most of the 12 million barrels of oil it loaned to refiners after hurricanes struck the Gulf Coast last year.

Bush, who criticized President Bill Clinton for drawing down the petroleum reserve by 30 million barrels to avert higher winter heating oil prices in 2000, says the 687-million-barrel reserve today is sufficient to withstand temporary disruptions in the nation’s oil supply.

So far, federal monitoring for price-gouging since Hurricanes Katrina and Rita last year has not averted price increases, and analysts see no evidence of a disparity between wholesale and retail prices.

The president has acknowledged that suspending daily deposits in the Strategic Petroleum Reserve this summer will not have a big impact on the supply of oil available for refineries.

“We’ll leave a little more oil on the market,” Bush said Tuesday. “Every little bit helps.”

Analysts say that if environmental standards for gasoline additives were relaxed nationwide, gas prices could drop significantly. But the White House is enabling regulators to waive environmental rules only regionally, with the aim of averting local shortages of gas. The Environmental Protection Agency says waivers will be granted case by case.

The move to ethanol as a cleaner additive to gasoline and a difficult transition away from the additive MTBE – which the government found was polluting water – have led to shortages of fuel in some parts of the country. Currently, only Pennsylvania has sought a waiver of the rules.

Bush “seemed to be indicating he wanted the EPA to grant waivers where there have actually been shortages,” said Andrew Weissman, senior managing director at FTI Consulting in Washington, calling a national waiver “very tempting from the standpoint of the White House.”

The president has authority to relax rules for only 20 days at a time without additional congressional approval.

“What’s most important, in terms of waiving those restrictions, is to … prevent any kind of shortage from occurring,” said Al Hubbard, director of the president’s National Economic Council.

“The president is very concerned about (gas prices) and is committed to doing everything he can to reduce the high price of gasoline,” Hubbard said. “Unfortunately, as the president said a number of times, it took us a long time to get into this situation and it’s going to take us a long time to get out.”

Jason Schenker, an energy analyst for Wachovia Bank, agrees that the hold on oil reserves will have little effect on prices. The U.S. oil industry currently has crude oil stocks of about 345 million barrels, or roughly a month’s worth of oil imports, he said.

“A few million barrels or more of crude oil are not likely to make the price of gasoline fall significantly,” Schenker said.

Gasoline production has fallen as refiners switch over to blends that meet environmental concerns, he agrees, and some refineries damaged by hurricanes still are not operating at full tilt.