Lawmakers urge Bush to tap oil reserve

But many analysts say use of emergency supply would not curb gas prices

Katrina' Wake

August 31, 2005|By Paul Adams | Paul Adams,SUN STAFF

Political pressure continued to build yesterday for President Bush to release some of the nation's emergency oil reserves despite widespread predictions that the move would do little or nothing to stop an inevitable rise in gas prices in the wake of Hurricane Katrina.

Some lawmakers called on the president to take swift action to calm energy markets as the market price for crude oil flirted with $70 a barrel for a second straight day and gasoline futures surged 41.44 cents on concerns about damage to the nation's critical oil production facilities in the Gulf of Mexico. Several analysts are forecasting gas prices easily topping $3 per gallon in the coming weeks.

"President Bush must deploy the [Strategic Petroleum Reserve] to avoid this economic disaster," said Sen. Charles E. Schumer, a New York Democrat. "If there was ever a time for the Strategic Petroleum Reserve to be tapped, it would be now."

Political debate

But many oil industry consultants and analysts say tapping the 700 million-barrel reserve won't do any good as long as the nation's maxed-out refineries can't convert the oil into gasoline fast enough to satisfy consumer appetites. The debate over releasing the oil may be more about scoring political points than pain at the pump, some say, unless industry officials find widespread and lasting damage to oil rigs and refineries in the storm's wake.

"Everything you're hearing from senators, Congress and the president is all just political posturing," said Daniel Lippe, president of Petral Worldwide, an oil industry consulting firm in Houston. "I'm sure the president himself knows that all the crude oil in the [Strategic Petroleum Reserve] doesn't do anybody any good until you have the electricity back on. And the inventories that the refiners themselves already own are more than enough to take care of running the refineries."

To tap or not to tap is a debate that has been revived repeatedly in the decades since the reserve was established in 1975 to protect the nation from the sort of energy crisis that devastated the economy during the 1973-1974 Arab oil embargo.

Lawmakers have frequently used it as political ammunition during times of high energy prices, while economists have often decried government interference with energy markets. The stakes are especially high for Bush as criticism of his handling of the Iraq war and a relentless rise in energy prices continue to erode his public approval rating.

The Bush administration has said that it is considering a release of reserves to mitigate the loss of oil production resulting from the storm, which temporarily knocked out at least eight refineries that account for up to 10 percent of the nation's refining capacity and forced the evacuation of more than 700 offshore oil rigs. The reserve oil is sitting in four giant salt caves in Louisiana and Texas.

Presidential spokesman Scott McClellan told reporters yesterday that the Department of Energy is reviewing one oil refiner's request for a loan from the reserve. He said the administration is prepared to review more requests as they come in.

Tapping reserves

In principle, the reserve isn't supposed to be touched except in the event of a major disruption in oil supplies, which must also lead to a severe price spike that could have a serious impact on the economy. The idea is to use the reserve to buy time if supplies are disrupted and keep the economy humming until things return to normal.

But in practice, the reserve has been tapped for a variety of reasons, some of which have sparked cries of political maneuvering in recent years.

The first President Bush tapped the reserve after the start of the Persian Gulf War in 1991 to alleviate concerns about a wider disruption in Middle East oil deliveries. The price of oil dropped nearly $10 a barrel the next day, prompting criticism that the move was unnecessary.

President Bill Clinton sold a small amount of the oil in 1996 to pay for upgrades to equipment used to maintain the reserve. With oil prices low and supply concerns minimal, he tapped it again in 1996 and used the proceeds to pay down the federal deficit.

Political pressure prompted another swap of reserve oil in fall 2000 as energy prices spiked heading into the winter heating season. That led critics to charge that the move was designed to boost Al Gore's presidential prospects.

Bush ordered the reserve increased to 700 million barrels after the Sept. 11, 2001, terrorist attacks, reasoning that future terror activity might target the oil industry. The buildup has been implemented gradually and was nearly complete when Katrina struck, analysts said.

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