Originally created 08/07/03

U.S. strategic reserves increased as domestic supplies wane



WASHINGTON -- Despite precariously low oil supplies, the government has been pumping millions of barrels into its emergency reserve, which some critics charge has contributed to a surge in crude prices and kept gasoline costs high.

The Energy Department discounts the impact of the purchases, almost 11 million barrels since the beginning of May. And energy economists and analysts are divided; some say many other factors are keeping prices high.

Nevertheless, Sen. Carl Levin, D-Mich., urged Energy Secretary Spencer Abraham on Tuesday to suspend the oil shipments into the Strategic Petroleum Reserve immediately, "until the price of oil falls from its current high levels and the private sector inventories increase."

He produced figures showing that while 11 million barrels of oil were being diverted from oil markets into the SPR, commercial inventories during the same period were declining by 10 million barrels.

"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," wrote Levin, senior Democrat on the Senate Governmental Affairs investigations subcommittee.

Energy Department spokesman Joe Davis said both Democrats and Republicans in Congress have made clear they want the strategic reserve, now at 611 million barrels, filled to its 700-million-barrel-capacity.

"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," said Davis.

Critics, who note the administration suspended shipments to the reserve last winter because of the loss of Venezuelan oil and a looming war in Iraq, questioned the timing.

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

While stocks rebounded slightly last week because of a boost in imports, they remained 37 million barrels, or nearly 12 percent, below the five-year average and 30 million barrels below what they were at the corresponding time a year ago, according to the DOE's Energy Information Administration.

Also, 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, after declining in the spring.

Light sweet crude sold for $32.22 per barrel Tuesday on the New York Mercantile Exchange. Crude prices are expected to stay above $30 a barrel into December, according to the futures markets. The EIA predicts high prices as long as commercial stocks are tight.

A number of analysts said the supply problem stems from a variety of factors: the problem in getting Iraqi oil flowing again; OPEC producers carefully scrutinizing production; and U.S. refiners refusing to buy oil at $30 or more when they anticipate lower prices.

John Lichtblau, chairman of the nonprofit, New York-based Petroleum Industry Research Foundation, dismissed suggestions the SPR shipments had a measurable impact 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," Lichtblau said.

Energy consultant Phil Verleger, an economist, disagreed. He said in an interview 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 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.

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." Continuing the diversion, he said, "is just helping prop up prices," said Berkovitz.

Since January 2002, the amount of oil in the SPR has increased from 554 million barrels to nearly 611 million. The United States uses about 20 million barrels of oil a day, with about half coming from imports.

On the Net:

Strategic Petroleum Reserve: http://www.spr.doe.gov