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OIL: Signals to Unlock U.S Reserves Fail to Ease Prices

Emad Mekay

WASHINGTON, Sep 23 2004 (IPS) - Statements from the George W. Bush administration that it may heed repeated calls to release oil from its strategic stockpiles have failed to halt climbing prices.

Democratic candidate John Kerry had previously called on Bush to use the U.S. Strategic Petroleum Reserve (SPR) to ease soaring oil prices. In March, Kerry criticised Bush for filling the SPR while supply crunches squeezed consumers in the United States and abroad.

Finally on Thursday, the administration said that it may dip into reserves, after U.S. oil refineries specifically asked them to do so. But prices failed to fall, dashing earlier expectations that the move would have an immediate effect. This has also prompted fears of further spikes on the back of instability in the Middle East and sabotage of oil operations in the U.S.-occupied Iraq.

London’s Brent crude was up 1.54 at 44.93 dollars while U.S. light crude rose 1.59 dollars, or 3.4 percent, to 48.35 dollars a barrel.

The Bush administration said it had received requests from refiners along the Gulf of Mexico, the area hardest hit by a powerful storm last week, to borrow small amounts of oil for short periods of time from the U.S. stockpile, which was started in 1974 after the Arab oil embargo against countries that helped Israel.

Ever since, rich countries have accumulated oil in strategic reserves. Now, 13 rich nations are sitting on 1.43 billion barrels of crude and refined products. One-half of the reserves are in the United States; the next two largest volumes are in Japan and Germany.

On Wednesday, the U.S. government’s Energy Information Administration (EIA) said Hurricane Ivan caused major delays in oil shipments and caused many refineries to shut down or cut back production last week. The hurricane also has kept tankers away from their ports.

The shortage in supplies hiked up prices, since the Gulf of Mexico accounts for nearly one-third of domestic oil production.

The EIA says U.S. commercial petroleum inventories fell by 13.1 million barrels last week, with a decrease of 9.1 million barrels in commercial crude oil inventories alone.

“The sharp decline in inventories reflects the drop in crude oil production, imports, and refinery production that Hurricane Ivan caused last week,” said the EIA.

Lending to refineries from the SRP could ease the upward pressure on prices in the United States.

“That’s something that the Department of Energy has been reviewing,” White House spokesman Scott McClellan told reporters.

The administration has refused to release oil from the SPR, citing national security concerns.

“We’ve always said the Strategic Petroleum Reserve was set up to protect against physical disruptions of oil supplies such as national emergencies or natural disasters, and not to manipulate prices or for political purposes,” McClellan said.

Critics of this policy have accused Bush of placing the interests of oil companies before consumers across the world.

“George W. Bush has turned a blind eye to the record energy bills that have been plaguing Americans throughout his term when he should have been working on solutions,” said Kerry’s spokesman Phil Singer in a statement on Thursday.

“President Bush needs to get out of fantasy land and start coming up with some real world solutions to the energy prices that have been strangling the economy,” he added.

On Wednesday, Energy Secretary Spencer Abraham said the administration would not stop diverting oil into the SPR. However, he said he would urge the Organisation of Petroleum Exporting Countries (OPEC) ministers at a meeting this weekend to pump more oil.

This would be the administration’s first public move this year to show it is trying to curb the record-high gas prices that have risen to over two dollars a gallon in the United States.

The Kerry campaign has says that higher gas prices have cost U.S. consumers over 25 billion dollars since 2000.

“This money has gone directly from consumers pocketbooks into the hands of oil companies and oil producers, including OPEC,” said Singer. “The big three oil companies in America have profited 33.6 billion over the past three years.”

These companies are ExxonMobil, ChevronTexaco and ConocoPhillips

The Democratic candidate says that he would temporarily suspend filling SPR until oil prices return to normal levels.

Philip Verleger, a senior fellow at the Institute of International Economics in Washington who built a reputation of accurate oil predictions in the past, says that world oil prices could rise to 50-70 dollars per barrel over the next two years, with major consequences for the world economy.

Threats to oil operations in Iraq, combined with instability in the Middle East, delays in Venezuela and high demand in Asia, are all contributing to the high prices, especially in the United States.

The U.S., which has less than five percent of the world’s population, burns 25 percent of the world’s total energy.

In Iraq, the latest blow to the oil industry came when the deputy manager of the North Oil Company, who had survived two previous attempts on his life, was shot dead by gunmen Thursday as he left for work in the northern city of Mosul. Sana Toma Suleiman had received several previous death threats for working for the U.S. occupation.

The EIA predicted that the United States would see a large increase in crude oil imports this week, prompting further fears of oil price hikes.

On Thursday, the Institute for the Analysis of Global Security said that the U.S. is now facing a “perfect storm” of strategic, energy, economic and environmental conditions that demand a dramatic reduction in the quantities of imported oil.