April 24, 2006
Monday

WASHINGTON - Unseasonably high gasoline prices are causing a new political headache for the White House and Republican lawmakers already on edge as they head into their re-election campaigns.

President Bush's sagging approval ratings over the Iraq war and a host of other problems led him to begin a White House staff shakeup. New polling data suggests the rising cost of gas could cause more political damage.

Three-quarters of Americans said they disapprove of Bush's handling of the gas-price surge, according to an ABC News/Washington Post poll. Fuel and oil prices jumped to third place - behind Iraq and immigration - in a Gallup Poll survey asking Americans to rate the country's most pressing problems.

One problem for Bush is that oil traders' fears of geopolitical instability have been fueled by his major foreign-policy initiatives - first in Iraq, where the war is into its fourth year, and now in Iran, which is defying warnings from Bush and other world leaders over its nuclear ambitions.

Fifteen Democratic senators wrote Bush last Tuesday, asking him to convene an emergency energy summit and to back anti-price-gouging legislation.

"In the absence of leadership or cooperation from your administration, we will soon be moving ahead with our own set of real solutions, which will spur the kind of innovation and investment America needs to secure its energy future for the 21st century," the senators wrote.

Republican lawmakers, meanwhile, have shown little interest in Bush's appeal, in his State of the Union speech this year, to lessen Americans' dependence on foreign oil by investing in alternative fuel technologies.

With Congress set to reconvene this week, House and Senate working groups of lawmakers' aides are meeting to discuss energy proposals. Republican-backed bills to boost long-term domestic petroleum supplies have stalled.

Anne Korin, head of the Set America Free coalition of liberal and conservative groups dedicated to cutting foreign-oil imports, said bipartisan groups of lawmakers are beginning to work together on legislation aimed at reducing U.S. consumption.

Modeled on the law that over time required American automakers to install safety air bags, the new measure requires 80 percent of all domestic-made cars to be able to run on alternative fuel mixes such as ethanol with five years. The energy bill Congress passed last year mandates increased production of ethanol.

"We're seeing Republicans engaged on this issue who weren't engaged before," Korin said. "They understand the national-security implications of our dependence on foreign oil."

Months before the annual summertime high-travel spikes at the pump, an unfortunate confluence of events is pushing up the cost of gas well ahead of schedule.

Crude-oil prices reached a new record of $75 a barrel Friday, driven by nuclear gamesmanship in Iran, continued violence in Iraq, the war of words between Venezuelan President Hugo Chavez and U.S. officials, and Nigerian rebel attacks on the African nation's oil pipelines.

Imported oil accounts for almost three-fifths of American oil consumption, and oil costs make up 55 percent of domestic gasoline prices, according to the U.S. Energy Department's Energy Information Administration.

With several large Gulf Coast refineries that were hit hard by Hurricane Katrina last year just now coming online, nationwide gasoline production is at 86 percent of capacity, a seven-year low that is creating shortages.

Booming economies in China and India are accelerating international demand for oil, while the improving U.S. economy has boosted demand 1 percent higher than a year ago.

Facing billions of dollars in potential legal liability from lawsuits on behalf of local communities, American refiners are phasing out a gasoline additive called MTBE and replacing it with ethanol, a renewable fuel produced from corn.

The increased demand is driving ethanol prices up, and refiners say it costs them more to produce gasoline with ethanol because it cannot be transported via pipelines.

"The bottom line is we've got a lot less refineries running than we normally would at this time of year," said Doug McIntyre, an analyst with the Energy Information Administration. "It's resulted in a drop in gasoline production of 457,000 barrels a day (about 19.2 million gallons) from the same time last year, which is about 5 percent of the U.S. market."

Gasoline-distribution terminals from Virginia to Massachusetts began experiencing shortages last week, leading to skyrocketing prices at local gas stations. The cost of regular unleaded gasoline rose above $3 a gallon in the Washington and Baltimore areas, while the national average passed $2.86 - a 20-cent increase in less than a week, and 63 cents higher than a year ago.

Kevin Kerr, a commodities expert and editor of Global Resources Trader, said oil and gasoline prices could rise much higher in the months to come.

"Several major disruptions are driving us toward the $100-a-barrel level and $5 or more (per gallon) for gasoline," he said. "These skyrocketing prices could be caused by Iran, OPEC, refinery shutdowns, hurricanes, Venezuela or possibly all of these factors combined."

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