President Bush's order for a small drawdown of the U.S. Strategic Petroleum Reserve is designed to calm crude oil futures markets.
Under the Sept. 26 order, the Department of Energy will sell 5 million bbl from the 590 million bbl reserve, with deliveries beginning in 15 days and lasting 30-60 days.
Bush said he took the action to thwart speculators who might try to drive up the price of oil.
BUSH VIEWS THE MARKET
"While the oil market is very tight with little spare capacity," Bush said, "there is sufficient oil to meet current needs. The oil market has simply not taken into account the additional production coming on stream from a variety of sources or available commercial stocks. There is no justification for the intensive, unwarranted speculation in oil futures."
Bush added that if the drawdown doesn't calm the market, "I'm prepared to take additional steps, if necessary, to ensure that America stays strong."
The price of crude oil had been climbing on the New York Mercantile Exchange, and just before Bush's action had reached $38.67/bbl.
Henson Moore, deputy energy secretary, said the futures market "is not really reflecting the amount of oil available on the oil market at all. What it's reflecting is apprehension about the market."
Moore said, "Every day that goes by, every barrel of oil we lost from Iraq and Kuwait is being replaced by a barrel of increased production."
The White House and Energy Sec. James Watkins differed on the purpose of the drawdown. Watkins said, "The test sale is not intended to affect oil prices. it is intended to enhance the SPR's preparedness. Whether it will in fact have any effect on the market is uncertain at this time."
The Bush administration had been resisting an SPR drawdown, saying the reserve was for supply disruptions not price disruptions.
DOE planned to issue a notice of the sale Sept. 28. It will offer sweet and sour crude.
Deliveries from the SPR could begin late this month, but most of the SPR oil likely will be pumped in November. During 30 days, the average drawdown would be 167,000 b/d. Oil will be sold from each of the three major distribution complexes in the SPR system.
Watkins urged the House energy committee to give DOE authority to sell as much as 15 million bbl on a "test" basis. Rep. Phil Sharp (D-Ind.) promised such a bill would be passed within days.
The day of his announcement, Bush received a bipartisan letter from 36 members of the House of Representatives urging him to begin selling SPR oil.
FURTHER DRAWDOWN POSSIBLE
White House Press Sec. Marlin Fitzwater said Bush "reluctantly" decided to use the SPR but would be quick to release more oil if the administration decides speculators are trying to take advantage of the Persian Gulf crisis.
Ironically, the drawdown will be conducted under a recently enacted law the administration once opposed.
The law permits the president to conduct a 5 million bbl drawdown "test" without declaring a supply disruption is imminent, the normal requirement for a drawdown.
The drawdown will be the second for the SPR. In 1985 Congress ordered a 1 million bbl test sale.
It went smoothly.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
