Oil prices holding high, for now

American gasoline prices are at a nine-year high

In this story: Next move up to OPEC U.S. oil drillers avoiding risk RELATED STORIES, SITES

February 10, 2000
Web posted at: 11:11 AM EST (1611 GMT)

FREESTONE COUNTY, Texas (CNN) -- After hovering at $10 a barrel only a year ago, crude oil is now near $30 -- the highest price in a decade. In fact, costs are soaring for many forms of consumer energy.

VIDEO CNN's Charles Zewe examines the effects oil prices have on those who drill for oil in the U.S. Real 28K 80K Windows Media 28K 80K     AUDIO Joseph Stanislaw, Cambridge Energy Research associate, and Robert Allison Jr., chairman of Anadarko Petroleum, talk about rising oil prices Stanislaw - 112K/10 sec. AIFF or WAV sound Allison - 88K/8 sec. AIFF or WAV sound     POP QUIZ How many U.S. gallons are in a barrel of oil? 31 31.5 42 55

For example:

  • Natural gas is up 30 percent in two years.

  • Gasoline is at a nine-year high.

  • Home heating oil is up 133 percent in just five weeks.

It's all because of production cuts by OPEC -- the Organization of Petroleum Exporting Countries -- whose members agreed in March 1999 to choke back the flow of oil by 5 million barrels a day.

"These very low prices of a year ago not only traumatized them, but threatened their national finances and they got serious," said Daniel Yergin of Cambridge Energy Research Associates.

Next move up to OPEC

The agreement expires next month at which time OPEC is expected to announce whether it will continue the lower production policy that has driven up the cost of crude oil.

"We think the most likely scenario is in March they will raise production," Shane Streifel, energy economist for the World Bank, said recently.

The increase could be as much as 2 million barrels per day, based on the International Energy Agency's estimate of the gap between world consumption and output in the first quarter, he said.

Cambridge Energy president Joseph Stanislaw says OPEC knows that if the price "is too high, too long, and they actually starve the market, alternative fuels will eventually come in and consumers will begin to say, 'I need to switch to other fuels.'"

Still, Streifel cautions it is also possible that OPEC will decide not to increase production. "It's not a foregone conclusion," he said.

While concerned about rising energy prices, the Clinton administration says it has no plans to release crude oil from the Strategic Petroleum Reserve. But it is expected to unveil initiatives to alleviate what the White House calls "supply disruptions" in the heating oil market in the Northeast.

OPEC may increase its production of oil by as much as 2 million barrels a day -- or it may not

The reserve, which currently holds 568 million barrels of oil, was created by Congress in the mid-1970s after the Arab oil embargo rocked the U.S. economy.

U.S. oil drillers avoiding risk

Despite the recent runup in prices, many U.S. oil companies -- which have increased drilling in areas of known deposits -- are shying away from risky ventures.

The companies worry that by the time they can get together enough money to pay for a major exploration project, OPEC could open the spigots again, dropping prices and jeopardizing their investment.

OPEC members agreed to hold back the flow of oil by 5 million barrels a day in March 1999

"I think we've learned our lesson to not overbuild or overspend in the boom times and realize that the bust times are going to be short-lived too," Robert Allison, Jr., chairman of Anadarko Petroleum, told CNN.

The only constant in the oil business, he says, is "things are going to change."

For consumers, that means expect volatile energy prices for the rest of the year.

Correspondent Charles Zewe and Reuters contributed to this report.

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