Pirinc urges US to refill crude oil stockpile while market is low

By the OGJ Online Staff

HOUSTON, Oct. 30 -- The Petroleum Industry Research Foundation Inc. (Pirinc), New York City, said Tuesday that the US is missing an opportunity if it fails to fill its Strategic Petroleum Reserve to capacity.

In a report, Pirinc said, "The sharp decline in oil prices since Sept. 11 makes the most immediate action the government could take to enhance energy security much cheaper, namely, buying more crude oil for the SPR.

"The SPR is the nation's insurance policy against international supply disruption and the economic dislocation that would follow. In recent years, the tendency has been to let this coverage lapse.

"Now, when oil prices are down and the risks of disruption are growing, is the time to buy more insurance. A unique opportunity was missed in 1998-99 when oil prices were at their lowest levels in decades. But then, the country was complacent about oil supply security. We ought not make that mistake again."

Pirinc since 1990, the SPR has accounted for about 35% of total US oil inventories. It added that industry stocks are mostly operational and unlike the SPR, are not available for discretionary use.

It said US inventories this year have averaged about 90 million bbl, about 6% below their average level over the 1990s.

"The decline appears greater when measured against demand, and especially measured against imports. Inventories have fallen from the equivalent of nearly 100 days of demand in the early 1990s to about 77, a decline of about 21%. Relative to net oil imports, coverage has fallen from about 235 days to about 145, a decline of nearly 40%.

"The steeper declines in days coverage of demand and net imports come about because demand this year is about 1.7 million b/d, or 16%, higher than in 1990 while net imports are up nearly 3.4 million, or nearly 50%." Pirinc said the SPR has capacity for 700 million bbl but currently holds about 545 million bbl, equivalent to just over 50 days of imports, down from a peak of nearly 90 in 1992.

It said federal royalty oil could be used to fill the SPR but the program could not start until next year and would be limited to 125,000 b/d, tied the level of federal offshore royalty oil.

Pirinc said the timing is good for the government to fill the SPR much faster with market purchases.

"Since Sept. 11, oil prices have moved down to about their average since 1990. While oil prices have weakened, security concerns have intensified, with both factors supporting buying now.

"It is certainly true that entry of the SPR into the market would add certain strength to the market and perhaps make it easier for the Organization of Petroleum Exporting Countries to sustain its price objectives. But OPEC may act to strengthen markets in any case and right now, the priority should be to enhance our energy security by raising the amount of oil in place in the US.

"Moreover, with oil markets weak and OPEC spare producing capacity at 4.5-5 million b/d, the immediate market impact of SPR purchases would be measured in nickels and dimes, not dollars," Pirinc said.