By OGJ editors
WASHINGTON, DC, Feb. 26 -- Sec. of Energy Spencer Abraham said Tuesday that the US would release oil from the Strategic Petroleum Reserve only after consulting with its allies.
"We will make any decision only in consultation with our IEA [International Energy Agency] partners," he told the Senate Energy and Natural Resources Committee while testifying on his agency's fiscal year 2004 budget request.
"We do not believe it should be used to address price fluctuations," Abraham said.
Responding to lawmakers' questions, Abraham reiterated that the White House's policy concerning the 600 million bbl stockpile is that it should only be used for a "severe" supply disruption, not to control prices.
Similarly, he said the department had no immediate plans to order withdrawals from the 2 million bbl Northeast home heating oil reserve. Some East Coast lawmakers and heating oil dealers have been urging DOE to draw down stocks. But Abraham said conditions do not yet warrant a release.
Heating oil for March delivery hit an all-time high of $1.1535/gal Monday on the New York Mercantile Exchange, surpassing the previous record of $1.15/gal in November 1979, before closing at $1.1467/gal, up 3.82¢ for the day (OGJ Online, Feb. 25, 2003). It then dropped 2.41¢ to $1.1226/gal Tuesday as traders took comfort from Abraham's testimony that the government could quickly to release US emergency oil reserves if Middle East oil supplies are disrupted by a war with Iraq (OGJ Online, Feb. 26, 2003).
However, DOE officials reported Wednesday that US inventories fell by 1 million bbl for crude, 3.1 million bbl for gasoline, and 3.9 million bbl for distillate during the week ended Feb. 21.
IEA officials said Tuesday they are monitoring market conditions and may call on members to release stocks if they feel oil producers cannot keep up with demand. But price levels alone won't trigger a response, they stressed.
The IEA charter calls on member countries to release their stocks if oil supplies are cut by more than 7%, but the agency said it has the authority to act below those levels if market conditions compel them to take action.
As part of its emergency contingency planning, IEA also calls on member countries to hold oil stocks equivalent to 90 days of net imports from the previous year. The US SPR currently holds 54 days of what DOE calls "import protection." But when combined with private stocks, the inventory available to US consumers is about 150 days of net import demand, according to DOE.
On Feb. 20, IEA said combined publicly and privately held stocks among its members now equal about 115 days of total net imports, about 25 million b/d. The stocks, held as both crude and product, are near IEA members' refineries and distribution points and "can be made available rapidly to markets," the agency said.
The US Energy Information Administration estimated earlier this month that OPEC (Organization of Petroleum Exporting Countries), excluding Iraq and Venezuela, has 2-2.5 million b/d of excess oil production capacity that could be brought onstream. About 70% of the spare capacity is in Saudi Arabia with nearly all the rest in other Persian Gulf countries.
Venezuela predictions
At the hearing, Abraham also responded to questions from lawmakers on Venezuelan oil supplies. The DOE secretary said it could be 2-3 months before the US import levels are at pre-strike levels. Venezuela historically has been one of the US' top suppliers; last year it averaged 1.5 million b/d but levels have fallen dramatically since then.
Earlier this week Venezuela's state oil company Petroleos de Venezuela SA lifted "force majeure" restrictions on some of its crude export contracts. PDVSA officials said production is now at 2 million b/d, the highest level since the start of the nationwide strike Dec. 2. Former PDVSA officials dispute those numbers, saying production is at 1.5 million b/d. Since the strike about 40% of the PDVSA workforce, mainly managers, have been dismissed for their role in organizing protests against the country's president Hugo Chávez.
Even with the prospects of more Venezuelan crude, market conditions remain fragile, and EIA expects price volatility to continue in the near term given the ongoing political situation in Venezuela and possible military action in Iraq creating uncertainty.
Inventories for both crude and product within the US likely will remain below historical levels, the agency noted.
EIA said Wednesday that despite market expectations of rising US crude oil imports, at 8.3 million b/d during the week of Feb. 21, imports actually dropped 400,000 b/d. Lower imports resulted in crude oil inventories being drawn down by 1.0 million bbl to keep crude refinery inputs averaging 14.5 million bbl. The agency said that over the past 5 week period ending Feb. 21 total petroleum product inventories have plummeted by more than 45 million bbl, about 1.3 million b/d.
"With crude imports averaging closer to 8 million b/d as opposed to 9 million b/d day, crude oil inventories and product inventories (as a result of lower production levels) are likely to remain low for quite some time or at least until oil demand drops significantly for a sustained period," EIA said.
