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Bush Set to Open Oil Reserve Spigot

WASHINGTON - With oil near $50 a barrel, the Bush administration is set to allow oil refineries to borrow from the government's emergency petroleum stockpile to make up for supplies disrupted by Hurricane Ivan, a congressional source briefed on the pending decision told Reuters last week.

The oil would be loaned from the 670-million-barrel Strategic Petroleum Reserve to two refineries for two to three weeks, said the source, who did not know the names of the energy companies requesting the oil.

A separate government source told Reuters that one of the loans would be for 100,000 to 200,000 barrels, and the other for 1 million to 2 million barrels.

White House spokesman Scott McClellan said the Energy Department was reviewing the oil loan requests from Gulf Coast refiners "to make sure that our system continues to operate until production and imports can resume."

"We've always said that the Strategic Petroleum Reserve was set up to protect against physical disruptions of oil supplies, such as national emergencies or natural disasters, and not to manipulate prices of oil for political purposes, and certainly Hurricane Ivan had an effect on the temporary supply of oil imports and production," McClellan said.

However, an aide to Democratic presidential challenger John Kerry accused the Bush administration of playing politics with the nation's oil stockpile less than six weeks before the U.S. presidential election.

Sen. Kerry has for months called for the administration to temporarily suspend shipments to the reserve to help lower crude oil and gasoline prices.

"America needs a president that listens to the needs of families struggling to pay their energy costs at all times - not just when a few oil refineries weigh in and not just a few weeks before the election," Kerry campaign spokesman Phil Singer said last week.

The Bush administration has failed to offer "real world solutions to the energy prices that have been strangling the economy," Singer added.

U.S. commercial crude stocks fell 9.1 million barrels to 269.5 million barrels last week, their lowest since Feb. 6, the U.S. Energy Information Administration said last week.

Hurricane Ivan thrashed through the Gulf of Mexico last week, disrupting offshore oil production and coastal refinery operations. The effects of Ivan had shut in 9.6 million barrels of oil output from the gulf, according to government figures.

U.S. oil prices jumped as high as $49 a barrel last week at the New York Mercantile Exchange as traders said the oil loans would not be enough to replenish inventories.

President Bush has insisted that the reserve must be filled to its 700 million barrel capacity to counter any disruption in oil supplies that might be caused by terror groups or natural disasters.

A spokesman for the American Petroleum Institute, the main trade group for major oil companies, said: "In general we support the use of the SPR if there is an emergency situation."

However, he would not say if the API believes the current supply shortage caused by Hurricane Ivan was an emergency situation. "It's up to the president to decide," he said.

In October 2002 there was a short-term loan of oil from the reserve due to supply disruptions from Hurricane Lili.

The congressional source said the oil for the new loans would come from the reserve's four storage sites in Texas and Louisiana, or by diverting oil deliveries to the stockpile and sending them to the refineries.

Energy companies that are scheduled to deliver crude to the reserve have also made a request to delay those shipments, the government source said.

It is possible that oil could instead be sent to the refineries asking for the reserve's crude.

Exxon Mobil Corp. (XOM.N: Quote, Profile, Research) , Royal Dutch/Shell Group's (RD.AS: Quote, Profile, Research) (SHEL.L: Quote, Profile, Research) Shell Oil, Atlantic Trading and Marketing Inc., Glencore Ltd. and Koch Supply and Trading LP won six-month contracts last February to deliver an average 100,000 barrels of oil a day to the reserve through the end of this month.

At least 11 refineries on the U.S. Gulf Coast shut or reduced operations because of Hurricane Ivan.

Market sources said the most likely refineries to have asked for SPR crude were Motiva's Norco refinery and ExxonMobil's joint-venture Chalmette plant, both in Louisiana. The companies did not immediately comment.

The reserve was created by Congress in the mid-1970s after the Arab oil embargo and stores its million of barrels of crude in underground salt caverns.

(Additional reporting by Steve Holland and Caren Bohan)

Story by Tom Doggett

REUTERS NEWS SERVICE

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