Oil Falls as Government Considers Tapping Strategic Reserve

Sept. 23 (Bloomberg) -- Crude oil in New York fell from a one-month high after a White House spokesman said the U.S. may loan oil to refineries from the Strategic Petroleum Reserve to make up for supply disruptions caused by Hurricane Ivan.

The Energy Department is reviewing a request by oil refiners to borrow from the reserve to make up for disruptions caused by the hurricane, spokesman Scott McClellan said. He wouldn't say when a decision would be made. U.S. oil supplies last week plunged close to a 29-year low reached in January, the government said yesterday.

"Overnight, word came that the government was mulling tapping the reserve in order to supply refiners," said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. "I'm not convinced that it will happen and the amount wouldn't replace what was lost because of Ivan."

Crude oil for November delivery was down 30 cents, or 0.6 percent, at $48.05 a barrel on the New York Mercantile Exchange at 11:45 a.m. Oil touched $48.65 yesterday, the highest since reaching a record $49.40 on Aug. 20. Prices were up 77 percent from a year earlier. The November contract jumped $5.51 a barrel, or 13 percent, in the eight sessions beginning Sept. 13.

The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department. That's $73.39 in 2004 dollars. In 1974, a barrel of oil averaged $9.07, which would be $34.83 today. Prices surged that year after the Arab oil embargo that followed the Arab-Israeli war of 1973.

In London, the November Brent crude-oil futures contract was down 13 cents, or 0.3 percent, at $44.80 a barrel on the International Petroleum Exchange. Brent reached $45.15 a barrel yesterday, equaling the intraday record reached on Aug. 20.

Department Review

"It's something that the Department of Energy has been reviewing -- a request from Gulf Coast refiners to borrow for a short period of time small quantities from the SPR to make sure that our system continues to operate until production and imports can resume," McClellan told reporters at the White House.

The Energy Department last released oil from the reserve in October 2002 after Hurricane Lili, when it loaned 296,000 barrels to a unit of Royal Dutch/Shell Group to help with disruptions to pipeline shipments.

The reserve holds a record 670 million barrels, and Bush's goal is to fill it to its capacity of 727 million by next summer. President Gerald Ford signed legislation creating the stockpile in 1975 following the Arab oil embargo of 1973-1974.

Eight-Week Plunge

U.S. crude-oil supplies fell 9.1 million barrels to 269.5 million in the week ended Sept. 17, the Energy Department said. It was the first time since 1988 that inventories dropped for eight straight weeks. The decline left supplies at the lowest since the week ended Feb. 6. Stockpiles last week were 5.8 million barrels higher than in the week ended Jan. 23, which was the lowest since September 1975.

"U.S. oil inventories have fallen by 16 million barrels in two weeks because of the hurricane," said Doug Leggate, an analyst at Citigroup Inc. in New York. "Production has been lost and it will take a while for all of the postponed imports to arrive. This has delayed any recovery of U.S. inventories."

The Louisiana Offshore Oil Port, the biggest U.S. crude-oil import terminal, suspended offloading tankers yesterday in the Gulf of Mexico because of Tropical Storm Ivan. The port was closed from Sept. 13 to Sept. 18 because of strong winds and high seas caused by Ivan when it was a hurricane.

U.S. oil imports plunged 15 percent last week to an 18-month low of 8.426 million barrels a day as Ivan shut ports along the U.S. Gulf Coast, Energy Department figures showed.

"A lot of this move is based on the short term impact of the hurricane," said Craig Pennington, head energy analyst at Schroders Plc in London. "There is a backlog of tankers that will take about three to four weeks to unload, but once that occurs you should start to see builds."



 

 

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