WASHINGTON -- Despite President Bush's decision to release a modest amount of oil from the nation's emergency reserves, oil prices soared above $40 a barrel yesterday -- the highest level since the panic buying during the energy crisis a decade ago.
By closing time at the New York Mercantile Exchange, crude prices for November delivery settled at $39.54 a barrel, up 87 cents, after reaching a high of $40.10, reflecting continuing fears of a major supply disruption from the Persian Gulf crisis.
The White House had hoped its Wednesday announcement that 5 million barrels would be released from the Strategic Petroleum Reserve would help dampen "unwarranted speculation" in world oil markets.
But traders and analysts said the president's decision was much too modest to overcome the upward price momentum. The United States uses about 17 million barrels a day.
The minor use of the 590-million-barrel reserve was authorized by Congress earlier this month as a test because the emergency supplies, stored in salt domes in Louisiana and Texas, have never been tapped to deal with an emergency since they were established in 1975.
Yesterday, however, key lawmakers on energy issues began moving a bill through Capitol Hill that would authorize the president to conduct a 15-million-barrel test of the reserve and of the bidding process used to sell the oil.
But even that higher level, designed to improve the testing procedures, was not expected to affect the oil markets, which were only briefly affected by the president's action at the start of yesterday's trading.
Crude prices dipped about a dollar a barrel initially before rising again.
"To have a significant impact on the market, something more than a token is required," George Friesen, an oil analyst at the Deutsche Bank Group, told Reuters.
The Paris-based International Energy Agency is to meet today to assess world oil supplies and decide whether the time has arrived to draw down major emergency reserves,
Officials with the agency said yesterday it appeared unlikely that the 21 member countries would be advised to use their reserves now because a real shortage had yet to develop.
U.S. Energy Secretary James D. Watkins, testifying on the oil outlook yesterday before a House Energy subcommittee, said the administration does not see "the urgency to press" at the meeting for release of emergency supplies.
Mr. Watkins called the decision to release 5 million barrels of the strategic reserve "an important milestone" in being prepared should a full-scale release be needed. But, in response to questions from the panel, he repeatedly stated that the president had yet to decide to undertake full-scale use of the reserve.
"We're not talking about a draw-down," he said, referring to the planned test of the reserve. "It is not the case."
Aside from propane, Mr. Watkins said, there is no shortage of worldwide energy supplies that would warrant use of the reserves.
He said, however, that supplies will tighten in the final three months of the year, especially in November, when the heating oil season starts.
Given the lead time necessary to auction the oil and supply it to the market, a decision on drawing down the reserves could come in the next two or three weeks, administration officials said.
"OPEC countries have eaten up their surplus capacity, so there is no cushion if things get worse," an official of the International Energy Agency said, calling current global supplies "manageable, though not comfortable."
The agency, which was established in the 1970s and monitors global oil supplies, estimates that the 13 members of the Organization of Petroleum Exporting Countries have produced 22 million barrels of crude a day this month, up from the August low of 19.7 million barrels.
The increase helped offset the 4.3 million barrels a day no longer available from Kuwait and Iraq. Most of the added output came from Saudi Arabia.
The U.S. Strategic Petroleum Reserve is by far the world's largest emergency supply, but Japan has a reserve of 208 million barrels and West Germany has stored 53 million barrels.
A Bush administration official said the U.S. strategic reserve would be tapped only in coordination with other countries because "we don't want others to be free riders on our oil."
Drawing down the reserves would require a declaration by President Bush that there is a shortage endangering national security.
The administration, wedded to free-market principles, has been arguing that the emergency supplies should not be used to lower prices.
Nevertheless, the president indicated Wednesday that continuing high prices might lead him to use the reserves.
Speaking at a Republican fund-raiser in Chicago, the president said he might draw on the supplies if "intensive and unwarranted speculation continues."