The Outlook On Energy From John Felmy Chief Economist Of The American Petroleum Institute
Friday, September 02, 2005SUSIE GHARIB: Some big help is on the way to relieve the American energy crunch. Energy Secretary Samuel Bodman said today that President Bush has authorized the sale of 30 million barrels of crude from the strategic petroleum reserve on top of the nine million barrels previously loaned to several oil companies. Bodman also said that Europe will dip into its emergency stocks of gasoline and oil to help the United States. The International Energy Agency will send 1.1 million barrels of gasoline and two million barrels of crude per day to the U.S. for the next month. Joining me now to talk more about these developments, John Felmy. He`s chief economist of the American Petroleum Institute. Hi, John.
JOHN FELMY, CHIEF ECONOMIST, AMERICAN PETROLEUM INSTITUTE: Good evening.
GHARIB: To what extent do you think that this influx of crude and gasoline will help our situation?
FELMY: Well all in things equal, adding more supply to market generally helps the conditions. The SPR loans were very important because we have refineries that were still operating that were starting to run out of crude and this additional crude in the market could really help.
GHARIB: How long will it help?
FELMY: Well, it`s going to help as long as it continues. Right now they`re talking about a 30-day window and so over that period at least, it could help the market conditions.
GHARIB: At what point will we see prices at the pump come down as these refined products and gasoline start getting distributed through the system?
FELMY: At this point it`s hard to say, but one important thing that has happened is we`ve seen the futures price of gasoline drop by over $0.40 a gallon over the past two days. Now we know that retail prices tend to follow the futures and wholesale prices, so we`ll have to see how soon they respond.
GHARIB: So what do you think will be the direction of prices next week?
FELMY: Well, at this point, we`ve had very good news over the past week. We`ve seen pipelines begin to operate. We`ve seen crude import facilities operating again. We have barges running and so on. So, the system is recovering from what was a real body blow.
GHARIB: Now John, we`ve heard stories of price gouging in some markets. The price of gasoline has gone up by a $1 overnight. We have people now going into a long weekend where many Americans like to drive for the holiday weekend. What do you think that they can expect in terms of prices on this holiday weekend?
FELMY: Well at this point, what we`ve seen is of course the futures market had reacted very sharply in the beginning of the week and so futures prices went up by over $0.60 a gallon and spot markets went up even more. And so that was reflected in some retailers` costs. Going forward, as long as consumers are prudent in their use and purchase of gasoline, we should see adequate supplies. But we`ll have to see how things proceed.
GHARIB: What if they`re not prudent? What if people are filling up their tank even though they don`t need the gasoline? Are they contributing to shortages?
FELMY: We learned from the 70s when people filled up and topped off unnecessarily, lined up and essentially bought more gasoline then they needed, they can really drain the system, even when you have things functioning normally.
GHARIB: So do you think that we`re on the verge of an energy crisis something like what we saw in the 70s?
FELMY: The difference between now and then is one of the reasons why we had such an energy crisis in the 70s was because of a self-inflicted wound. We had very bad energy policy, that had price controls and allocation controls that created an artificial shortage and created that crisis. Now we have a very real shortage that we`re working our way through and as long as we`re able to keep working as hard as we can, we`ll be able to rectify some of the supply problems.
GHARIB: Can you give us a little update on the supply situation? I know at the time of the whole Katrina catastrophe, nine refineries were down. Three major pipelines were interrupted and disrupted. Where do we stand on all this now?
FELMY: The three major pipelines have been restarted to some degree either between 60 and 90 percent of capacity. So we`re getting crude flowing. We`re getting refined products flowing. The nine refineries are still down. We`ve had word that a couple are starting their restart procedures. Three of the remaining ones appear to have at least some degree of damage, but what was important is that the local utility has been able to restore power to those refineries and so now we can actually begin to restart.
GHARIB: OK, still a lot of work to be done. John. Thank you very much for coming on the program. Appreciate it.
FELMY: My pleasure.
GHARIB: We`ve been speaking with John Felmy, chief economist of the American Petroleum Institute.
