Four weeks after Iraq's invasion of Kuwait touched off the biggest oil crisis in a decade, the Bush administration is holding firm in its decision not to sell oil from the Energy Department's Strategic Petroleum Reserve.
In fact, the reserve is growing. A shipment due this week of oil purchased before the invasion will bring the total amount of government-owned oil stored in Louisiana salt caverns to just over 590 million barrels, according to Energy Department officials. That is about a 65-day supply at current import rates.
It is a measure of the wide range of oil prices in the 14 years since the reserve was created that the average price of those 590 million barrels was $27.26 a barrel -- within a dollar of the opening price in yesterday's trading in New York. In the early 1980s, the Energy Department, like everyone else, was paying more than $30 a barrel. Early this year, the price was about $16. In the interim, the price was everywhere in between.
As crude oil prices doubled in about six weeks and retail gasoline prices went up about 20 percent, the administration resisted strong appeals from influential members of Congress, consumer groups and some independent energy analysts to open the reserve.
The policy gamble appears to have paid off, as prices have retreated sharply from last week's peak and the Organization of Petroleum Exporting Countries has ratified a decision by Saudi Arabia and some other members to increase production to compensate for the 4.3 million barrels of oil a day lost to world markets by the shutdown of Iraqi and Kuwaiti production. Commercially owned stocks of crude oil in the United States rose by 1 million barrels last week, according to the American Petroleum Institute.
As a result, pressure to open the reserve has eased, and the Energy Department still has an untouched 590 million-barrel ace in the hole to play if President Bush declares an energy emergency later this year.
Energy Department officials have told Congress that the president would consider putting some of the reserve oil on the market in an emergency, but they did not define "emergency." Many oil analysts, however, said that the mere existence of the reserve exerted a moderating influence on oil markets, preventing the panic buying that marked the oil crises of the 1970s.
Between them, Kuwait and Iraq supplied about 9 percent of the oil produced in the non-communist world, according to the Energy Department, and 8.7 percent of the roughly 9 million barrels a day that the United States imports, according the American Petroleum Institute.
The overnight removal of that oil from the supply stream sent prices spiraling upward, even though crude oil inventories were high, because traders and refiners feared they would not be able to get replacement oil when current stocks were used up. A barrel of crude oil that cost about $16 on the New York futures market in June cost nearly $32 last week.
Advocates of opening the reserve said it was created to help the United States cope with just such a crisis. They argued that the Energy Department could put 1 million barrels a day up for bid for three months, earning revenue and calming the oil markets while leaving most of the reserve intact.
Powerful members of Congress, including Senate Energy and Commerce Committee Chairman J. Bennett Johnston (D-La.) and Rep. Philip R. Sharp (D-Ind.), chairman of the House energy and power subcommittee, urged that the reserve be opened. But the Energy Department said no real supply crisis existed, and has refused to open the reserve as a means to hold down prices.
"We haven't seen anyone who disagrees with our calculations that there is no true supply-demand price increase. It's just the psychology of the market," said Deputy Energy Secretary W. Henson Moore. "We are looking at the true supply numbers."
Petroleum stocks in the United States, Japan and Europe are "500 million barrels above normal for this time of year," according to the Energy Department's "situation analysis report" of Aug. 14.
With oil flowing freely, even at much higher prices than last spring, President Bush accepted the Energy Department's argument that no attempt by the government to influence the market was justified and it was not necessary to dip into the government-owned reserve, administration officials said.
Some analysts have argued that this position cannot be maintained beyond October, when inventories dwindle and demand for heating oil begins to rise. For example, Arnold E. Safer, president of the Energy Futures Group in Bethesda, has calculated that no more than 200 million barrels of oil from commercially held stocks will be "immediately available" by then.
A supply reduction of 3 million barrels a day for 90 days "would exceed this quantity, clearly indicating the need for governmental release of strategic reserves of pehaps as much as 1 million barrels a day over the next 90 days," according to Safer.
Congress is expected to act next month on a bill that would increase the maximum size of the reserve from 750 million to 1 billion barrels.