U.S. to Release 30 Mln Barrels of Oil From Reservesgreenspun.com : LUSENET : TB2K spinoff uncensored : One Thread
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Sat, 23 Sep 2000, 2:49am EDT
U.S. to Release 30 Mln Barrels of Oil From Reserves (Update2)
By David Wells
Washington, Sept. 22 (Bloomberg) -- The U.S. will release 30 million barrels of oil from the nation's reserves over 30 days to boost supplies, Energy Secretary Bill Richardson said. The decision comes after oil prices reached a 10-year high earlier this week.
President Bill Clinton authorized the release from the nation's 571-million barrel Strategic Petroleum Reserve ``to make sure American families keep warm this winter and get their heating oil,'' Richardson said.
``Increased world demand has sent oil prices skyrocketing,'' Richardson said. He described the release as a temporary exchange of oil supplies -- what's known as a ``swap.'' Contractors will have to return an equal amount to the SPR, plus a premium, so the plan will ultimately benefit national security, he said.
Crude oil fell 4 percent today to a one-month low on expectations of the decision. Crude for November delivery dropped $1.32 to $32.68 a barrel on the New York Mercantile Exchange, the lowest closing price for a most-active contract since Aug. 25. Oil on Wednesday rose to $37.80, the highest price since October 1990, after Iraq invaded Kuwait.
Analysts said Clinton's decision would lower prices. ``This will influence the psychology of the market and bring the prices down,'' said Michael Lynch, a vice president and oil market forecaster with Wefa Energy Services in Bedford, Massachusetts.
Energy prices have become a hot issue in the Nov. 7 presidential election campaign. Democratic contender Al Gore -- who said he consulted with Clinton -- yesterday began urging him to tap the reserves. Today Vice President Gore said the U.S. should immediately authorize ``releases of 5 million barrels each, six or seven times over the next month.''
If the policy works, it should be continued, Gore said during a campaign appearance in Pittsburgh.
Gore's opponent, Texas Republican Governor George W. Bush, was quick to attack today's decision. ``Some months ago, the president and the vice president thought it was a bad idea,'' he said. ``Now that we are 45 days from the election, they've changed their mind. It's a bad idea. And I still think it's a bad idea.''
The emergency reserve was created to deal with supply interruptions that cause a ``national emergency.''
A 32 percent increase in oil prices this year has boosted the cost of motor fuels and heating oil, which is heavily used in the Northeast and Midwest for warming homes. Clinton has said he'll do what he can to limit any adverse impact of high energy prices on Americans.
15 to 25 Days' Supply
Richardson said the temporary release of 30 million barrels of crude would likely add 3 million to 5 million barrels of heating oil to U.S. supplies. That's roughly 15 to 25 days' supply, by department estimates. The department will seek bids for the oil Monday.
The release is more than the market expected, said Ed Maran, an analyst at A.G. Edwards. ``It won't directly affect the supply of heating oil,'' he said. ``Since U.S. refiners are running at full capacity already, this won't cause the amount of heating oil to increase.''
Still, he said, a lower oil price could spur increased refining in Europe and indirectly result in more heating oil available for export to the U.S. ``Having a lower oil price should help the heating oil situation indirectly in the long-term.''
Wefa's Lynch said the current situation is complicated because of ``very low inventories and a real sort of speculative bubble in the market.'' That would have ``gone away on its own within in a matter of weeks,'' Lynch said. ``So in that sense this is not a terribly good precedent.''
Tom Bentz, a senior analyst and broker at BNP Paribas Commodity Futures Inc. in New York, said the release is ``something that was needed and probably needed a while ago.'' The oil won't reach the market until November, he said.
``If this wasn't an election year I don't think we'd see the oil,'' Bentz said. ``I do think it's politically motivated.''
The oil and gas industries have donated $21.5 million so far this election season, with $16.7 million, or 78 percent, going to Republicans, according to the non-partisan Center for Responsive Politics. Energy industry donors gave $3.8 million to Bush about $269,000 to Gore.
`Real Economic Risk'
Treasury Secretary Larry Summers warned earlier today that the recent surge in oil prices could threaten the U.S. economy.
``The possibility of temporary disruptions due to depleted inventories or a temporary squeeze represents a real risk to consumer interests and to consumers, and represents a real economic risk,'' Summers said in a news conference.
Oil companies opposed a release. ``The Strategic Petroleum Reserve was established by Congress to address supply disruptions. It was not intended, and should never be used, to manipulate prices,'' the American Petroleum Institute said in a statement yesterday.
Refining Capacity an Issue
API said oil companies are doing ``everything they can'' to supply Americans with heating oil, natural gas and other fuels needed for the winter months. U.S. refineries already are running at 94.7 percent capacity, API said.
Donato J. Eassey, an analyst with Merrill Lynch in Houston, said he feared a release of crude oil wouldn't replenish heating oil stocks, down 19 percent from year-ago levels. ``We're running full-tilt,'' he said. ``You've got to turn that (crude) into usable oil. It's not like you can just open the spigot, and out pokes fuel oil.''
The reserve was created after the oil shocks of the 1970s to guard against disruptions in supply. The only time the government tapped the reserve for emergency reasons was in 1991 during the Persian Gulf War.
The administration approved two 500,000-barrel exchanges from the reserve in June after oil deliveries to two Louisiana refineries were cut off when a dock collapsed and blocked a shipping channel. Richardson said then that the administration released that oil to make sure Americans had enough gasoline for the summer's heavy driving season.
The government also traded oil in May 1996, when it swapped 900,000 barrels with Atlantic Richfield Co. because of blocked pipelines.
About 28 million barrels were sold in 1996 and 1997 for deficit reduction purposes.
The government-owned crude is stored in huge underground salt caverns along the coast of the Gulf of Mexico in four sites in Louisiana and Texas.
-- (M@rket.trends), September 23, 2000
And what happen if OPEC just decides to reduce production because of this?
-- Gore (email@example.com), September 23, 2000.
"Gore's opponent, Texas Republican Governor George W. Bush, was quick to attack today's decision. ``Some months ago, the president and the vice president thought it was a bad idea,'' he said. ``Now that we are 45 days from the election, they've changed their mind. It's a bad idea. And I still think it's a bad idea.''"
In Feb. last year, "The Clinton administration is moving to shore up the petroleum reserves the nation would tap in times of oil crisis with a plan to take 28 million barrels from a glutted marketplace." "We are making this step for energy security, for good energy policy," he said. "The American taxpayer wins because oil prices are low and we store for a rainy day." Link
So this "rainy day" is upon us, and they release what they've bought at cheap prices last year. Makes sense to me. That they thought it was a bad idea 45 days ago makes sense too, when they thought they still could influence OPEC to produce more. Now that the winter is soon upon us, heating oil will be a problem for lower-income families if something isn't done now.
-- (firstname.lastname@example.org), September 23, 2000.
Shrub keeps mouthing off about what a bad idea it is, yet it was a very good idea when his Daddy did it 1991. He's just pissed because that is what he was going to do if he gets elected.
-- (email@example.com), September 23, 2000.