- The Washington Times - Wednesday, June 8, 2005

The United States’ emergency fuel tank — the Strategic Petroleum Reserve — is almost full for the first time since its creation about 30 years ago.

The milestone is significant because it gives the country a larger energy-security blanket than ever to call upon in a supply disruption. But the stockpiling of 700 million barrels of oil, which is scheduled for completion by the end of August, also could bring some immediate relief to the global energy market, analysts say.

When the Energy Department effectively tops off its reserve, which is stored in underground salt caverns along the Gulf Coast in Texas and Louisiana, about 75,000 barrels of oil per day will become available for commercial purposes.

Oil analyst Jim Burkhard of Cambridge Energy Research Associates in Massachusetts, said, ?It will add to an overall trend of softening demand growth.?

Tim Evans, an oil analyst with IFR Energy Services in New York, argues that the net impact would be a swing of 150,000 barrels a day because demand essentially would fall by 75,000 while the available supply would rise by that amount.

?You get double the impact here,? he said.

Even if he’s right, that amounts to less than 0.2 percent of the average worldwide demand of about 84 million barrels a day.

Lawrence J. Goldstein, president of PIRA Energy Group in New York, said it is possible that the Organization of the Petroleum Exporting Countries might rein in production slightly once the U.S. reserve demand disappears, although he feels more strongly that the reserve’s near topping off will go unnoticed on world oil markets.

?We’re talking about nickels and dimes,? he said.

Even Mr. Burkhard cautioned that in spite of slowing economic growth in 2005, global oil demand is expected to grow this year by 1.8 million barrels a day — a level of consumption that should keep prices at elevated levels given the world’s supply tightness.

On Tuesday, light sweet crude futures settled at $53.76 per barrel.

In its latest weekly petroleum supply report, the Energy Department said the reserve contained 693.3 million barrels, up from 660.8 million a year earlier.

The oil pumped into the reserve comes from petroleum producers in lieu of royalties they must pay the government for operating on federally leased lands. Once the inflow is halted, those royalties will flow to the government at an estimated rate of more than $80 million per month, assuming a value of about $38 per barrel for the sour crude the government had been stockpiling.

The oil in the reserve is worth about $18 billion.

Whether or not prices ease after the reserve is full, the process’s end will temporarily put to rest a debate about whether the Bush administration’s policy of filling the reserve to the brim amid record-high oil prices was a good one.

Critics — including Sen. Charles E. Schumer, New York Democrat, and the Air Transport Association, a trade group for the airline industry — said the policy exacerbated the problem of high fuel prices, and they called for it to end.

The Bush administration countered that it would not use the reserve as a tool to nudge prices. Supporters said so little was going into the reserve that it wasn’t having that large an effect on the market anyway.

The upcoming lull in filling the reserve, where the capacity was recently revised upward to 727 million barrels, is likely to be short-lived.

Congress may expand the reserve’s capacity by 300 million barrels as part of broader energy legislation.

But even if Congress decides to expand the reserve, it could be many months before additional barrels are socked away, because the Energy Department would have to buy more salt caverns and then prepare them for crude oil storage. The reserve was established in December 1975, after the Arab oil embargo, but the first barrels weren’t delivered until the summer of 1977.

PIRA Energy Group’s Mr. Goldstein argued that it is important to expand the reserve because as the country’s demand and dependence on imports rise, the U.S. is becoming more vulnerable to output disruptions, meaning an ever larger supply buffer is needed.

?Now when something goes wrong, the price of oil moves not by nickels and dimes, but by dollars,? Mr. Goldstein said.

With U.S. oil imports exceeding 10 million barrels per day, the reserve theoretically holds enough fuel to cover more than two months worth. However, the maximum drawdown capacity of the reserve is 4.3 million barrels a day, according to the government, which amounts to 27 percent of the daily input to refineries in the United States.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide