- The Washington Times - Tuesday, August 5, 2003


The Bush administration’s decision to buy oil for the government’s emergency reserve is contributing to tight supplies and higher energy prices, some economists and congressional Democrats contend.

The Energy Department discounts the effect of the purchases, nearly 11 million barrels since the beginning of May, while a number of oil traders say other factors have had more of an effect.

Sen. Carl Levin, Michigan Democrat, urged Energy Secretary Spencer Abraham yesterday to immediately suspend the oil shipments into the Strategic Petroleum Reserve “until the price of oil falls from its current high levels and the private sector inventories increase.”

“This administration’s actions to fill the SPR regardless of the price of oil or the amount of oil available to the commercial sector is a major reason for these high [crude] prices,” Mr. Levin, the ranking member of the Senate Governmental Affairs investigations subcommittee, wrote Mr. Abraham.

Energy Department spokesman Joe Davis responded: “The vast majority of Americans realize that ensuring the SPR is key to our energy and national security. That’s why there is bipartisan support to fill the reserve” to its 700 million-barrel capacity.

But commercial U.S. oil stocks have been at uncomfortable levels all year, putting upward pressure on prices.

Last week, the Energy Department’s statistical agency said stocks rebounded slightly because of a boost in imports, but remained 37 million barrels, or nearly 12 percent, below the five-year average and 30 million barrels below what they were at the like time a year ago.

Oil prices have been creeping higher to more than $30 a barrel, prompting gasoline prices to increase as well. The national average price of regular-grade gasoline increased 2 cents a gallon last week to $1.536, about 14 cents more than it was a year ago.

Light sweet crude sold for $32.22 per barrel yesterday on the New York Mercantile Exchange. Crude stood at more than $30 a barrel into December on the futures markets. It is expected to decline in 2004.

A number of analysts said the low inventories stem from a variety of factors: the problems in getting Iraqi oil to flow again; Organization of the Petroleum Exporting Countries producers carefully scrutinizing production; and U.S. refiners not eager to buy oil at $30 or more when they anticipate prices going down.

John Lichblau, chairman of the nonprofit, New York-based Petroleum Industry Research Foundation, dismissed suggestions the SPR shipments had a measurable effect on the global markets.

“It’s a very small amount, 80,000 to 100,000 barrels a day out of total crude imports of nearly 10 million barrels a day,” said Mr. Lichblau.

But some others disagree.

Energy consultant Phil Verleger, an economist, said that because commercial inventories are so low, any oil taken out of the market has an effect on price. “If inventories get lower, each barrel counts more,” said Mr. Verleger, who estimated that the 11 million barrels put into the SPR “probably translates into a buck or a buck-and-a-half a barrel” price increase.

Fadel Gheit, senior energy analyst for Fahnestock & Co., a brokerage firm, would make no such dollar estimate.

But he said he saw no reason to divert oil away from the commercial market at this time. If the oil had been allowed to go into the commercial inventories, it might have provided “breathing room … like priming the pump” at a time when an expected resumption of Iraqi oil production has not materialized.

Still, Mr. Gheit said refiners are expecting oil prices to drop and are trying to get by with as little oil in inventory as possible. “And that has nothing to do with the administration,” he added. “That is the true profit motive on the part of the industry and energy traders.”

Mr. Levin’s staff has closely tracked commercial oil inventories and shipments to the government reserve.

When the SPR shipments resumed in May, private-sector inventories dropped, said Dan Berkovitz, a Levin staffer on the investigations subcommittee. “The SPR shipments compounded the [supply] problem by taking oil off the market just at the time when the market was tightening up.”

He said the Energy Department’s current policy “is just helping prop up prices at their current high levels.”

Since January 2002, the amount of oil in the SPR has increased from 554 million barrels to nearly 611 million. Shipments were suspended in December, but resumed again in May. The United States uses about 20 million barrels of oil a day, with about half of it coming from imports.

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