The Clinton administration is considering a plan to release millions of barrels of oil from the US Strategic Petroleum Reserve, says Energy Sec. Bill Richardson.
DOE would swap crude from the 568 million bbl reserve with US oil companies, who would replace it within a year. They would bid to get the oil, with the premium being additional barrels of oil to be stored in the SPR.
The swap would help deflate world oil prices but would be consistent with the administration's policy of not selling SPR oil outright to reduce petroleum prices.
White House approval of the DOE plan was expected shortly at OGJ presstime. Under current law, Richardson has authority to swap SPR crude.
Richardson denied the proposal was meant to pressure the Organization of Petroleum Exporting Countries to raise output. That could depress prices, which are at a 9-year high.
OPEC-with cooperation from some non-OPEC exporters-has succeeded in removing 4 million b/d of production from the world market, and some of its members want to continue the production cuts after their scheduled Mar. 31 expiration. In a trip to Europe last week, Richardson was meeting with representatives of some OPEC member nations and is due to visit Saudi Arabia later this month.
Political pressure
Lawmakers in the New England states, which use most of the nation's home heating oil, have been urging the administration to use SPR oil to lower distillate prices.
Sen. Charles Schumer (D-NY) has been pushing the administration to tap the SPR since last fall. Schumer said 500,000 b/d of SPR oil should be sold through Mar. 31 to counter OPEC's supply curtailment. He and other congressmen plan to push legislation in Congress to that effect.
The 12% increase in New England heating oil prices in January became an issue in the New Hampshire presidential primary election. Former Sen. Bill Bradley (D-NJ) criticized the administration's decision not to use the SPR to lower prices.
Texas Gov. George W. Bush, the leading Republican candidate, said the SPR should not be used to lower prices. Bush said, "The president ought to get on the phone with the OPEC cartel and say, `We expect you to open your spigots.'
"The president must jawbone OPEC members to lower the price. And if in fact there is collusion among big oil, he ought to intercede there, as well.
"It's important for the president to explain, in clear terms, what high energy prices will not only do to our economy, but what high energy prices will do to the world economy," Bush said.
Schumer met with Federal Reserve Chairman Alan Greenspan and Treasury Sec. Lawrence Summers to argue for a SPR drawdown.
Richardson met with Schumer and Sens. Joe Liberman (D-Conn.), Jack Reed (R-RI), Lincoln Chafee (R-RI), and Olympia Snowe (R-Me.). Afterwards, Richardson said, "I don't anticipate triggering the sale of the SPR. Our policy of not manipulating markets has worked."
Kansas Gov. Bill Graves urged lawmakers not to legislate an SPR drawdown. Graves, the Interstate Oil and Gas Compact Commission chairman, said current law allows SPR oil sales only in the event of actual or potential supply shortages or to meet US obligations to the International Energy Agency.
He said, "The sale of oil from the SPR would hurt domestic petroleum producers who are only beginning to recover from an 18-month period of depressed oil prices."
Royalty oil
Earlier, Richardson said DOE would delay delivery of 5 million bbl of royalty crude to the SPR. The action influenced crude prices briefly.
DOE had contracted for 28 million bbl of federal Gulf of Mexico royalty oil to be delivered to the SPR, replacing volumes sold in recent years for budgetary reasons. Oil companies were delivering the royalty oil to the government for storage in the SPR in lieu of the usual cash royalty payments.
DOE said all but 10 million bbl had been delivered, but companies agreed to renegotiate deliveries of about 5 million bbl. They would deliver that amount, plus some more, later.
Richardson said, "Given today's market conditions, it simply makes sense to renegotiate these deliveries. The companies have indicated a willingness to discuss putting additional oil into the SPR if we postpone delivery dates. This would mean more oil supply, greater energy security, and a better deal for the American taxpayer."
Other actions
Richardson also asked the Energy Information Administration to monitor the heating oil market on a weekly basis for the rest of the winter. EIA had issued heating oil supply data biweekly.
Richardson said, "The administration is concerned about high oil prices and, in particular, home heating oil prices in the Northeast and New England. The EIA information is the simple, fundamental stuff of market economics but is of the utmost importance. We need to make certain we have the tools available to match consumers with suppliers."
Richardson said he would meet with refiners and distributors in Boston this month to discuss how government and industry can prevent future heating oil delivery problems. The National Association of State Energy Officials also will participate.
Richardson said the administration would increase federal assistance to families through the Low Income Heating and Energy Assistance Program (LIHEAP). It will add $45 million to LIHEAP programs in Alaska and 10 Northeast and Middle Atlantic states.
The administration also plans to ask Congress for an additional $154 million for low-income "weatherization" assistance in the 2001 budget. The local nonprofit organizations that administer the program would be given more flexibility in providing weatherization aid.
API reaction
The American Petroleum Institute says there is no distillate problem that needs repair. API Pres. Red Cavaney said, "The recent cold snap in the Northeast and some supply problems have caused unusual price swings for heating oil and diesel fuel."
API said heating oil prices increased about 5¢/gal nationally in January. It said colder weather in the Northeast froze ports and disrupted barge traffic. At the same time, the cold weather lead to increased demand, particularly since "interruptible" natural gas customers switched to distillates.
"Finally, the increases in petroleum product prices have sharply raised the cost of holding excess inventories. As a result, inventory levels are below the level of last year, when prices were very low," said API.
API said distillate stocks were 114.7 million bbl in late January vs. 150 million a year earlier, when stocks were unusually high. It said the average for the past 10 years has been 129.7 million in late January, while minimum operating levels were only 85-89 million bbl.
API said distillate supplies are more than adequate to meet demand for the rest of the heating season, even if weather is colder than normal.
Cavaney said the US should not use drawdown of the SPR as a reaction to prices: "Drawing supplies from the SPR to deal with temporary fluctuations in prices departs from its purpose as a tool for use in case of major oil supply disruptions. Moreover, the process of releasing oil from the SPR, refining it into products, and getting it to heating oil markets would take several weeks-probably beyond the end of the winter."
