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
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.
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
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
"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.
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."