WASHINGTON, DC�The Clinton Administration said Friday it will release 30 million bbl from the Strategic Petroleum Reserve over 30 days to reduce crude oil prices and increase home heating oil and gasoline stocks.
Earlier in the week, Vice Pres. Albert Gore, the Democratic Party's presidential nominee, had urged that part of the 571-million-bbl stockpile be tapped before winter began. Gore said, "Americans should not have to choose between heating and eating this winter."
Texas Gov. George Bush, the Republican Party candidate, accused the administration of "short term politics." Bush said the SPR was established not to counteract market swings but "for a national emergency, a national war, a major disruption of supply."
Richardson denied the administration's decision�which had been under consideration for a couple of weeks�was politically motivated.
DOE will issue a solicitation Sept. 25, bids must be submitted by Sept. 29, and awards will be made Oct. 2. Awards will be made on the basis of how much extra crude, in addition to the base volume, that companies offer to return to the SPR next year. Oil could be taken as Oct. 8 and all 30 million bbl will be released by Nov. 1.
Richardson said, "We will assess the supply impacts of this exchange on an ongoing basis, along with the market impacts of the Organization of Petroleum Exporting Countries's announced increase of 800,000 b/d. We are prepared to take further action if necessary."
Earlier this month DOE accepted bids to create a 2 million bbl home heating oil reserve in the Northeast.
Reasons given
Energy Sec. Bill Richardson said, "The President's reasons for taking this action are very clear. Portland, Me. will be in the 50s next week. So will Minneapolis. And it snowed in the Rockies yesterday. We need to make sure that American families keep warm this winter."
He said US distillate stocks are 19% lower than they were a year ago. On the East Coast, where 36% of homes use heating oil, stocks are 40% under year-ago levels. In New England they are 65% lower.
Richardson said, "The underlying cause of these low inventories is an imbalance between supply and demand. Increased world demand has sent oil prices skyrocketing. We've worked to get supply up. This administration has encouraged OPEC and non-OPEC producing nations to increase oil production�which they did. We now have 3.5 million more barrels of oil on the market than we did a year ago.
"But still, tremendous demand is siphoning off those extra barrels before they can get into inventories, and US crude oil stocks remain very low. The intended result of this exchange is simple�to increase oil supply.
"The temporary infusion of 30 million bbl of oil into the market will likely add an additional 3-5 million bbl of heating oil this winter, if refineries could match higher runs and yields seen in the past. Increased supplies will also help our diesel truck drivers, who deliver the sole source of supplies for 70% of America's communities."
Richardson said because companies will return more crude to the SPR than they took, "This will further increase the nation's protection against potential or actual energy supply disruptions. That's good energy policy."
Reactions
Sen. Frank Murkowski (R-Alas.), chairman of the Senate Energy and Natural Resources Committee, called the SPR release "a shell game."
He said, "One day after Gore chided OPEC for manipulating oil markets, the President is trying to just that�release oil to manipulate markets."
Richardson is due to testify before Murkowski's committee Sept. 26 on the SPR release and other issues.
The Independent Petroleum Association of America said, "It is hard to see how releasing oil from the SPR will improve heating oil supplies when refiners are running at 96% of capacity, and there is no more refining capacity."
IPAA also said, "It is unclear what the effect will be on price, since price is determined by commodity markets, and so far, commodity markets have not substantially reduced prices based on increased volumes of production."
Terry Smith, chairman of the California Independent Petroleum Association said, "Drawing down the SPR will endanger national security. The SPR was never intended to be used as a balancing mechanism to offset high crude oil prices. This will set a dangerous precedent for future use of oil from the reserve."
The conservative Cato Institute said, "We should open up the reserves, drain them as fast as possible, and shut the SPR down permanently.
"The SPR is a bad economic investment. A back-of-the-envelope calculation finds that, after adjusting for inflation, the oil in the SPR has cost taxpayers about $60/bbl to stash away for a rainy day. The SPR represents an insurance policy that's more costly than the disaster being insured against. Let's sell it off while oil prices are high and cut our losses."