Press Briefing by Secretary of Energy Bill Richardson, National Economic Advisor Gene Sperling, and Chairman of the Council of Economic Advisors Martin Baily

The James S. Brady Press Briefing Room

7:45 P.M. EST

MR. SPERLING: Today's announcement by OPEC and the projected declines in the price of oil and gas appear to be good news. As word of an increase of this range has filtered out, oil prices have already fallen 20 percent, from a high of $34.13 on March 7 to just over $27.00 today. We're obviously pleased that the futures markets now project oil and gas prices to fall each and every month for the rest of this year.

After experiencing both damaging highs and lows, both consuming and producing nations seek to find a Goldilocks oil price that is just right for both market stability and global economic growth. We feel that today's decision moves us in that direction.

That said, there is still significant inherent uncertainty in the oil market, particularly with such low inventories, and we will continue to monitor the situation very closely. We also need Congress to take long overdue action on the President's tax initiatives and research initiatives to increase our energy security through energy conservation, energy efficiency, and support for domestic oil production.

Congress should certainly act immediately to ensure that the authority for the Strategic Petroleum Reserve is not allowed to expire on Friday, March 31st.

In addition to the effective, quiet diplomacy of the President and the Vice President, who together reached out to at least eight heads of state in the last ten days, I want to note the exceptional talents and the exceptional and truly unrelenting efforts of our Secretary of Energy, Bill Richardson, who, along with his team, has literally traveled the globe, been up at all hours of night and morning on the phone relentlessly on behalf of American consumers and on behalf of trying to have a more stable energy and economic climate for both producing and consuming nations alike.

And with that, I'd like to introduce our Secretary of Energy, Bill Richardson.

SECRETARY RICHARDSON: Thank you, Gene. That was overly generous.

Today's announcement is good news for the American consumer, good news for producer countries, good news for consuming countries. It's good news for the international community.

Today, OPEC's announcement of a 1.7 million barrels-per-day increase over current production quotas is important. We're also anticipating more oil from non-OPEC nations, leakage over the new quota levels, and increased production from Iraq.

We know that many countries helped shape today's result, which is good for both producing and consuming nations. And particularly, I'd like to recognize the great efforts of Saudi Arabia. These increases will help stabilize all markets, encourage world economic growth, and increase equilibrium between supply and demand.

In January of this year, virtually all OPEC and non-OPEC producing nations were opposing production increases. Today, they announced increases in quotas. We've engaged in intensive international diplomacy for the last several months. And as Gene mentioned, the President and the Vice President have made some very crucial phone calls.

In our meetings with oil-producing countries, we simply and forcefully made our case that increased production is in the interests of both producing and consuming nations. We made the point that the world is consuming 75 million barrels per day, and it is producing 73. Let me correct something for the record that's been out there. When I went on behalf of the country seeking daily increases, it was 2 million; you've all been reporting 2.5 million. We've been asking for 2 million.

Since January, the administration has also taken significant domestic actions to address the issue of high oil prices -- from helping senior citizens from the poor to pay their heating bills, to loans for small businesses, to the creation of a regional product reserve, to support for incentives to increase domestic production, energy efficiency, and alternative energy sources, we've been tackling this problem.

The near-term success of our efforts is seen in today's announcement by OPEC. Long-term success will be seen when the Congress passes the administration's initiatives to increase the nation's energy security. The futures market is predicting a .15 decline in gasoline prices by July. That is the private sector. The Energy Information Administration, a statistical agency at the Department of Energy, independent, is predicting that gasoline prices could go down as much as .11 by the end of the summer in September. This is good news for the American consumer because of these agreements that OPEC has reached today.

I'd like to introduce the distinguished Chairman of the Council of Economic Advisors, Martin Baily.

MR. BAILY: Thank you. I'd like to say a word about the economic impact of energy prices and what we're looking forward, going forward, and then stress, perhaps, with a little more detail, this issue of what prices are expected to do, going forward.

There's no question, it's no news that the increase in energy prices that we've experienced has had an effect on consumer price inflation and wholesale price inflation. In the past 12 months, the Consumer Price Index rose 3.2 percent, and this compares with a 1.6 percent rise in the prior year. All of that is because of energy price increases, which went up about 20 percent in the past 12 months, which was led by the tripling of oil prices. This has hurt real earnings; it's hurt living standards of American workers.

To keep this in perspective, though, oil prices were extremely low a year ago -- so low, in fact, that production was discouraged both in the United States and in other countries of the world, including some non-OPEC countries. Obviously we would like to see an end to this roller-coaster ride of oil prices, and as Gene said, try to find that Goldilocks point that gives stability to American consumers and, indeed, consumers around the world, and at the same time, encourages production both here in the United States and elsewhere.

Another point to keep in perspective is that while this increase in energy prices has been painful, we still have an extraordinary strong economy. In fact, forecasts of growth for the year 2000 have been revised up. The blue chip consensus forecast is now 4.1 percent for growth in 2000. So that, while higher energy prices do have some negative effect on growth, that's been more than offset by the overall strength of the U.S. economy, and we certainly don't see this as in any way jeopardizing the expansion that we've had.

Also, as Chairman Greenspan noted yesterday, the direct effect of oil price increases has not triggered a broader inflationary surge, and that means that once prices stabilize and start to come down, as we anticipate they will, the effect on overall inflation should be that overall inflation returns to the low levels that we've seen now for several years.

It's also true that the U.S. economy is substantially less dependent on oil than it has been in the past. For example, we estimate that a typical household in 1980, which was a peak point for oil prices, spent 4.2 percent of its income on gasoline. In 2000, we would project about 1.6 percent of its income.

Now, it doesn't mean again that the price increases haven't hurt, but they need to be viewed against that backdrop of a somewhat smaller -- substantially smaller contribution of oil to the overall U.S. economy.

Now, looking forward, as Gene pointed out, oil prices have come down from $34 to $27, and we look at the futures market -- why do we do that -- because in the futures market, people are buying and selling contracts for oil in the future, they are betting or putting their own money on what they think the futures will be. Anyone who thinks they have a better prediction of what prices will be can be invited to trade in that market, and on their own terms.

So we think that in some ways, from the economist's point of view, is probably the best prediction of prices. We also, of course, have the predictions from the Energy Administration that Bill referenced, and the futures markets are not that far out of line with those. So I think we're all on the same page in saying that future oil prices and future gasoline prices are going to come down.

For example, the oil markets today, which I think were anticipating the increase that we've now seen, are expecting that oil will fall by $1 by July, by $1.50 by August, and by $3 by December. And remember that July and August, are, of course, strong months, driving months where the demand for oil is going to be strong, and since inventories are already low, again, we expect demand will be strong. And even despite that, we are seeing these expected declines in oil prices.

On the gasoline side, gasoline futures in the wholesale market are expected to decline by 15 cents in July, 18 cents in August, and 28 cents by December. So again, despite all the stories that you've been seeing about rising prices, the true stories about rising prices, we want to just stress to you that futures markets are saying that these prices will come down. In fact, we have already seen some moderation in gas prices, which fell two cents in the last week.

So looking forward, I think, as Bill and Gene said, I think this increase in production will help make sure that we continue the strong expansion that we've had, and bring some moderation to oil and gas prices. Thank you.

MR. SPERLING: Any questions?

Q: So you're just saying, on the gasoline prices, you're saying it would be down 28 cents from today's prices by December? Is that right?

MR. BAILY: That is the forecast in today's futures market, that it will be down --

Q: What dollar amount are we talking about?

MR. BAILY: Okay, the only difficulty with this is that these are wholesale prices that do not include taxes and the retail markup. So that's why I showed you the decline, which we would expect would get passed through to consumers. But it would be down -- as I said, the wholesale price is just over 95 cents in New York right now, and is expected to fall to just about 80 cents in July. So it's about a 15 percent, 15-cent decline over that period which should get passed through.

Q: Secretary Richardson, you said you were looking for 2 billion barrels a day. OPEC has given you 1.7 billion; Iran is opting out of it, if you will. Are you telling us not to worry about the difference?

SECRETARY RICHARDSON: No, I'm telling you that we've gotten 1.7 billion from OPEC. I don't know where Iran will be in that picture. It could be that other countries make up for that. But the official OPEC announcement is 1.7 billion.

Number two, we're also expecting, as I mentioned, additional oil from non-OPEC members, and they will be making their announcements shortly. In fact, one may already be doing it right now. If you also include the leakage that is expected -- and I believe that that is a figure that, on background, can be provided -- and Iraq -- increased production from Iran, I think that we will be well above our objective.

Q: Mr. Secretary, you visited Mexico, Denmark. What other non-OPEC countries have you visited?

SECRETARY RICHARDSON: Non? Mexico, Norway.

Q: I meant Norway -- not Denmark. And have they told you they will go along if there is an increase by OPEC?

SECRETARY RICHARDSON: I'll let them make their announcement.

Q: But are you optimistic?

SECRETARY RICHARDSON: Yes.

Q: Mr. Secretary, in the past when oil prices have gone up or down, it seems that increases are passed on at the pump like that; decreases seem to be passed on after a matter of weeks, sometimes months. I think several federal investigations have looked into this in the past. Is this something you're going to continue to be monitoring in the next few weeks? Is there anything the federal government can do to accelerate pass-through of declines in crude oil prices?

SECRETARY RICHARDSON: We're monitoring it.

Q: That's all you can do? I mean, there's nothing you can do beyond that?

Q: There is a concern that the refineries will not be able to produce enough gasoline because gasoline stocks are low, oil stocks are low, and it will take time to get the new oil. Do you have any concern of that sort, and what are you doing to make sure refineries go to maximum capacity to get gasoline out there?

SECRETARY RICHARDSON: Well, we've had an intensive meeting with the refiners, and we want them to get more gasoline out in the market. We anticipate that they will, I think, with the announcement today, it will be a big boost in that direction. We're going to call in the refiners in the next couple of days to see how they can move some of this gasoline into the market.

We anticipate that it takes about four to six weeks -- assume that the OPEC production increase start April 1, that it will take four to six weeks -- perhaps closer to the four and five than the sixth week.

Q: Mr. Secretary, the head of your U.S. Energy Information Administration said on Friday that OPEC needed to increase production three million barrels a day above its current quota in order to get crude oil prices to the historical average of 20 to 21, to provide enough oil to refiners to then produce the gasoline you say is needed, and to lower gasoline prices. So OPEC's doing 1.7. Are you saying the 1.3 is going to be made up by OPEC violations, producing above the quota, like from Iraq or other non-OPEC?

SECRETARY RICHARDSON: Let me give you some statistics. And how we get there you should get background from my staff. The current OPEC quotas are 23 barrels per day, 23 million. We believe that this agreement with OPEC will result in an additional 2.8 million barrels per day over current OPEC quotas and non-OPEC production. So, relative to today's actual OPEC production levels of approximately 24 million barrels per day, this represents an increase of 1.8 million barrels per day in actual production. So the total that this agreement will generate is 25.8 million barrels daily.

Now, I also want to cite -- I think Martin mentioned the Energy Information Administration -- they have calculated the gasoline price production levels with their caveats, which I will give you. And they are projecting, between April and December of this year, a decrease of 18 cents in gasoline prices. I think that's not as much as the futures market, but this is what they have just projected -- by the end of the summer, to an average of $1.42 in September, $1.42.

Q: But they had also projected that the peak for gasoline could reach as high as $1.80 nationally early this summer. Would this new OPEC agreement -- are you seeing that price as going down, not reaching $1.80?

SECRETARY RICHARDSON: Yes, we do.

MR. SPERLING: I should mention that you have to remember that many of those came out, projections came out in a week when the average was close to $32 per barrel. So you've already had a decline of $5 per barrel. But I think as Secretary Richardson is saying, there's both the quota and the production. And what you're seeing is that when you add the estimates of what you wanted to get production, it is quite close to what Secretary Richardson and the President were seeking. It's certainly in the ballpark, and that's why we think that this, on whole, does appear to be good news.

In terms of your question, we certainly believe that competition should in time bring these savings to consumers at the gas pump, and that is what we expect. And the administration will monitor that situation very closely.

Q: The situation will last how long before OPEC meets again to --

SECRETARY RICHARDSON: Well, the good news is that they've announced that they're going to meet again in June to consider additional production increases. So I think that's another positive development that came out today.

Q: Mr. Secretary, you talked about long-range solutions. Would you be willing to consider any of the solutions that Republicans have bandied about, such as more drilling either in Alaska or other areas?

SECRETARY RICHARDSON: No. The administration is opposed in ANWR, drilling off the coast of Florida and California. That's going to continue. President Clinton, last Saturday, announced a major initiative on domestic oil production, tax credits for additional exploration, for G&G expensing, for carry-back -- these are very technical terms, but these are important initiatives that the oil and gas industry feels will boost domestic production. Additionally, also to look at marginal wealth tax relief -- looking at it -- that's being studied right now.

In addition to that, I think the President has also called on the Congress to pass his alternative energy budget, fund energy efficiency programs for fuels, for automobiles, for buildings. And I think the Congress needs to step up to the plate and pass the alternative energy budget that the President has submitted, too.

Q: What type of tax relief did you say is being considered?

SECRETARY RICHARDSON: Well, he announced it. Tax credits for exploration. Tax credits for G&G expensing, geologic expensing, and what is called "carry-back" -- delayed rentals.

Q: But there would be no consideration of a reduction in the gasoline tax at all, which would amount to -- essentially an emergency spending measure, which you all do a lot here. They're proposing taking money out of the surplus, and using it to reduce gasoline taxes. What would be wrong with that?

SECRETARY RICHARDSON: You know, there seems to be great division in the Congress over that. The Republican leadership in the House has said it's a bad idea. I think with this initiative that is taking effect today, this may not be needed.

Gene?

MR. SPERLING: Well, I'd just say that there's been so much flip-flopping from the House Republican leadership, you don't know whether to reply to the flip or the flop. I think one thing that I agree, that Speaker Hastert said, was that this is not the solution. As Martin Baily has said, it's not even clear how much of it would ultimately go to the consumers versus the producers.

But I think rather than doing these things, what President Clinton, Vice President Gore, what Secretary Richardson have been focusing on is the quiet, effective diplomacy that I think has at least been somewhat instrumental in bringing the price per barrel down $7 since its high, as well as the long-term energy tax incentives that have been paid too little attention to. When you have an incentive that helps double the miles per hour of a car just by tax incentives, by win-win incentives, that's the equivalent of cutting gas prices in half for that particular consumer. These things can make a difference, and perhaps they won't be ignored as much.

One thing that Congress can do that could be constructive right now is that as we sit here and talk, the Strategic Petroleum Reserve authorization is set to expire on March 31st, this Friday. A constructive effort would be to at least ensure that we have this protection for national emergencies by reauthorizing this by this Friday.

Q: Mr. Secretary, is a release from the Strategic Petroleum Reserve either through a direct sell of oil, or a swap with energy companies, now appear unnecessary?

SECRETARY RICHARDSON: It's unnecessary. We've achieved a large part of our objective. The Strategic Petroleum Reserve is used for national supply emergencies. And I think the President's initiatives and the quiet diplomacy have resulted in making this option unnecessary.

Q: Mr. Secretary, is there any sense among you and the administration that maybe the American people ought to rethink the popularity of sport utility vehicles, since just about every other person is driving one now, and their mileage is so poor compared to other vehicles. Is this an issue?

SECRETARY RICHARDSON: Well, you know, one of the initiatives the administration is exploring is finding ways to make those SUV's more fuel-efficient, working with the Big 3 to find ways to find ways to make them commercially viable, accelerate the time that you make them commercially viable. We have some joint research programs -- Department of Energy and the Big 3 -- to achieve that. You know, we think the American consumer has been very responsible about this entire issue.

Q: Mr. Secretary, I got lost in the numbers here. If OPEC announced a 1.7 millon barrel-per-day increase, what is the net increase in total supplies? Is that 2.8?

SECRETARY RICHARDSON: 1.8 -- 1.8 increase per day in actual production. An increase of 1.8 --

Q: By OPEC?

MR. BAILY: No, OPEC and other producers.

SECRETARY RICHARDSON: Remember, our strategy was to deal with OPEC, but also to go after non-OPEC members that observe the OPEC pact. So you should judge our final result in the totality of what that brought.

Q: And that's going to get us to $25 a barrel -- $28 a barrel? Where is that going to get us? This idea that the futures market predict future price -- I hadn't heard it expressed quite that way before, since, in general, in terms of level prices, out-month contracts are selling for less than front-month contracts.

MR. BAILY: Yes, I think an increase of this kind was pretty much anticipated by the markets. We'll have to see. Obviously there's some uncertainty. We'll have to see over the next few days how this plays out in the markets. But at this point we would anticipate that this should get us down to that level of 24, and eventually, somewhat lower than that by the end of the year.

Q: To $24 a barrel, and less by the end of the year?

MR. SPERLING: You know, there are a lot of commentators, but the people who put their money on the line, the people who put millions of dollars of money and spend millions of dollars for research on the market, that is what they are projecting. And you said, would it be enough -- 28. The expectation of this announcement has driven the price from $34 high in at least a 10-day period where it was between $31 and $32 -- to just a little over $27. So all we are doing is reporting what is the most reliable objective basis by those who place their own money on the line projecting what oil prices will be.

And as I think Martin said, if someone had a different idea or better idea, they have an opportunity to achieve some wealth by betting on that.

MR. BAILY: Let me just respond to the specific question. The markets are suggesting essentially $26 by July, $25.50 August, $25 by September, and $24 by the end of the year. That's what was in the futures markets today.

Q: So, Mr. Secretary, to close this 2-million-barrel-a-day gap, between 73 million and 75 million in supply and demand, you think you've accomplished 1.8 of this agreement today from OPEC, plus the additional production that's going to come on from non-OPEC members, assuming Mexico and Norway, and then we have Iraq. That's all going to 1.8 million of the 2 million.

SECRETARY RICHARDSON: You missed one -- leakage. Leakage.

Q: And all that together gets an additional 1.8 million on the market --

Q: So we can survive with the 200,000-barrel-per-day gap -- that's what you're looking for?

SECRETARY RICHARDSON: That's the range, you know.

Q: We're now going to be at demand at 75 million and production at 74.8 million?

SECRETARY RICHARDSON: I think we'll be very, very close.

Q: Where did you get the 2.8 million?

SECRETARY RICHARDSON: All right. (Laughter.) All right. Melanie will give you background on how to do that.

Q: The 2.8 million is over the current quota, relevant to the current quota --

SECRETARY RICHARDSON: And non-OPEC --

MR. SPERLING: You're assuming that it's -- 1.7 million plus the other three factors he mentioned come to 1.1 million. That means 2.8 million above their quota. Since we assume they're already about a million over their quota, that means you have a net increase in production of 1.8 million, which is very close to the range that the Secretary and the President were searching for.

Q: Mr. Secretary, what's the U.S.'s view of the rift that developed within OPEC today and Iran stepping out of line with the other members? Is that good news in the long term with the U.S.?

SECRETARY RICHARDSON: This is an internal OPEC issue. What we were pleased was nine OPEC countries supported the 1.7 million. Algeria supported that. I think diplomacy worked there. Kuwait, that has been, I think, maligned unfairly in some quarters, responded very positively. Mexico, although not a member of OPEC, has been very helpful. But Saudi Arabia's role, I think, has to be particularly acknowledged.

Q: Refiners were operating at somewhere below 90 percent of capacity. Some people have said to get the price down, they would have to move up to somewhere around 98, 99 percent of capacity. Is that what you're looking for, and is that possible?

SECRETARY RICHARDSON: Yes. We want them to move up into the high '90s, and they're not quite there yet. So you're right.

Q: Could you -- just one quick question here -- in a letter to lawmakers on Sunday, you said that OPEC members had expressed that the U.S. was applying too much pressure. That's why you discouraged these lawmakers from trying to go to the OPEC meeting. Now that the meeting is over, can you give us a little bit more detail to elaborate on what they were telling you, and did you contact them today after their agreement and what did you say?

SECRETARY RICHARDSON: To the ministers?

Q: Yes.

SECRETARY RICHARDSON: I've been talking to them the last month, many times, every day. Last night, several times. I have talked to one since the agreement, but we rushed over here. You know, they just announced it. But I was in constant contact all day. I think our quiet diplomacy worked -- the results.

Q: What was this pressure you told the lawmakers that the ministers were saying they believed the U.S. was applying on them too much pressure?

SECRETARY RICHARDSON: This was -- Congressman Barton called me and said he wanted to take a delegation of eight members of Congress to observe the OPEC meetings, and could I check into it, did I think it was a good idea. I said, no, that I didn't think it was a good idea, that these meetings are held very informally, but only ministers are allowed into some of the plenary sessions, and I thought that it would be construed as pressure. I checked with several ministers who told me that.

Q: Ministers did say they thought it would be too much pressure?

SECRETARY RICHARDSON: Yes. Well, that was pressure.

THE PRESS: Thank you.

END 8:15 P.M. EST