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Administration Considering Oil Stockpile Release

Hurricane Ivan Linked to Supply Cuts

By Justin Blum
Washington Post Staff Writer
Friday, September 24, 2004; Page E01

The Bush administration is moving toward releasing oil from the nation's emergency stockpiles as a result of disruptions to production and imports caused by Hurricane Ivan.

Energy Secretary Spencer Abraham said yesterday afternoon that he had authorized negotiations with refiners for oil to be loaned on a short-term basis from the Strategic Petroleum Reserve. Officials said the Energy Department had received requests from refiners who said they were running short on supply.

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"As this Administration has stated consistently, the [Strategic Petroleum Reserve] was designed to protect American consumers against supply disruptions, including natural disasters," Abraham said in a statement.

The announcement, less than two months before the presidential election, came as oil prices have been flirting with record highs. Comments from the administration early in the day about the possibility of releasing oil from the reserves failed to calm the market, and instead sent the price of oil higher.

U.S. benchmark crude for November delivery closed at $48.46 on the New York Mercantile Exchange, up 11 cents from the day before. The Federal Reserve has said that high oil prices are restraining economic growth.

At least two refiners have sought the oil loans. Placid Refining Co. LLC of Port Allen, La. requested 250,000 barrels, and another company, whose name was not available, was seeking 1.4 million barrels, according to an Energy Department official who spoke on condition of anonymity because the details have not been finalized. The department is negotiating to allow refiners to use the oil on condition they replace it later along with additional supplies as interest on the loan.

Democrats immediately criticized Bush, saying the president should have acted sooner to deal with rising oil prices and supply disruptions overseas.

"For the duration of his term, George Bush has ignored and failed to offer any kind of viable solution for addressing the record energy costs," said Phil Singer, a spokesman for Democratic presidential nominee John F. Kerry. "When a few oil refiners come along, he snaps to."

A spokesman for the Bush campaign, Reed Dickens, dismissed the criticism. He said the administration has been consistent in saying it would not use the reserves to manipulate prices and would only release oil in the event of emergency.

"This is kind of armchair quarterbacking to score political points," Dickens said of the Kerry campaign response. "This is not serious policy advice coming from the Kerry campaign."

In September 2000, then-candidate Bush criticized President Clinton for authorizing the release of 30 million barrels of oil from the reserve to head off supply shortages of home heating oil. At the time, Bush said Clinton's decision was politically motivated in advance of the November election and that the reserve should only be used for "a national emergency, a national war, a major disruption of supply."

For weeks, as pipelines in Iraq and elsewhere have been attacked and prices have continued to rise, the administration has been considering the conditions under which oil from the reserves would be released, according to a source familiar with officials' thinking who would speak only on condition of anonymity.

Yesterday, administration officials portrayed the disruption caused by the hurricane as serious enough to warrant the release of oil. The storm damaged oil platforms in the Gulf of Mexico, forced the closure of refineries and prevented tankers carrying imports from docking.

Average U.S. crude oil production declined by 250,000 barrels per day last week and imports dropped by nearly 1.5 million barrels per day compared with the previous week, according to the Energy Information Administration, an arm of the Energy Department.

The administration compared what occurred as a result of Hurricane Ivan to the disruption caused by Hurricane Lili in 2002. In that case, the administration loaned 296,000 barrels of oil to a division of Royal Dutch/Shell Group.

Supply levels have gone down more during this year's hurricane than in 2002. Last week, U.S. oil supplies dropped 9.1 million barrels to 269.5 million barrels, largely because of the hurricane, according to the Energy Information Administration.

The Strategic Petroleum Reserve, located in Louisiana and Texas, contains about 670 million barrels -- equivalent to 33 days of domestic consumption, according to the American Petroleum Institute.

Several companies that own refineries in the Gulf region said they did not request the oil and others did not return phone calls or declined to comment. Officials at Placid, which supplies jet fuel to the military, could not be located for comment last night.

Exxon Mobil Corp. was not having a problem supplying oil to its customers, including a refinery in Louisiana that it partially owns, said company spokeswoman Prem Nair. She said Exxon Mobil believes the reserve should be used only in emergencies when there is "severe interruption to supply." She declined to say whether that is the case now.

Oil analysts said yesterday that prices went up because traders assumed that too little oil would be released from the reserves to make a difference.

Fadel Gheit, an analyst with Oppenheimer & Co. in New York, said that the administration's announcement spooked traders into thinking supply problems are worse than they had assumed. "It sent the wrong signal," Gheit said. "It was supposed to ease the market, but it backfired."

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