IEA acts: 26 Nations To Release Petroleum Reserves
A group of 26 countries, including the United States, yesterday agreed to release oil, gasoline or other petroleum products from their emergency reserves in an attempt to bring down soaring prices and avert domestic shortages.
The decision by the members of the Paris-based International Energy Agency goes far beyond previously announced plans by the United States to allow some oil companies to borrow from its own Strategic Petroleum Reserve. Unlike the United States, some of the member countries have emergency stockpiles of gasoline, which analysts said could eventually stabilize retail prices and help alleviate scattered shortages in some parts of the country.
Although the exports could take two weeks to arrive, Energy Secretary Samuel W. Bodman said he hoped the added supplies would eliminate shortages. "That's really the major concern we have is to avoid disruptions in the flow of fuel throughout our country," Bodman said.
Bodman said that he was "very pleased" by the energy agency's decision and that he expected it to lead to "some decline of price, but that will be a function of the marketplace." A gallon of regular gasoline is selling for more than $3 a gallon in some places.
The countries that belong to the International Energy Agency, whose mission includes managing oil crises, unanimously agreed to sell on the market a total of 2 million barrels of crude oil and petroleum products per day to make up for disruptions caused by Hurricane Katrina. Officials said the sales would last for 30 days but could be extended if needed.
In addition to the emergency release, oil companies are sending more gasoline from abroad to the United States than usual, Energy Department officials said. They could not provide details.
Oil traders drove down prices yesterday as word spread about the agency's plans. On the New York Mercantile Exchange, U.S. benchmark crude oil for October delivery fell $1.90, to $67.57 a barrel. Gasoline futures fell about 23 cents, to $2.18 a gallon after a steady increase this week.
The Organization of Petroleum Exporting countries said it is considering offering additional supplies. But analysts said the cartel already is producing near capacity.
The United States needs gasoline more than crude oil. Eight refineries that convert crude into gasoline were off line because of the hurricane, contributing to supply problems.
Two of those refineries are in the process of restarting, according to the Energy Department, while others have more serious damage. The United States has lost about 1.8 million barrels of daily refining capacity, or about 11 percent. Even before the storm, refining capacity was strained by increasing demand.
Pipelines that carry gasoline from the Gulf Coast to the Washington area and other parts of the country increased their capacity after power failures reduced flows. One of the pipelines, operated by Plantation Pipe Line Co., said its capacity increased to 95 percent of its usual amount from 25 percent on Thursday.
About 1.3 million barrels a day of oil production in the Gulf of Mexico remains off line because of the storm, according to the Minerals Management Service. The United States consumes more than 20 million barrels a day.
The International Energy Agency said in a written statement that its member countries are "acting in solidarity with the United States in addressing this loss and restoring confidence to the oil market."
The International Energy Agency decided to sell emergency reserves after reviewing information about storm damage to oil production and refining in the United States. Energy Department officials said the United States did not specifically ask for the reserves to be opened because such decisions are made based on data about disruptions, not pleas from governments.
Of the emergency supplies coming on the market, 1 million barrels a day will be crude oil from the 700 million-barrel U.S. Strategic Petroleum Reserve, held in salt caverns in Texas and Louisiana. The other countries will contribute 1 million barrels a day, which U.S. officials said they hoped would be in the form of gasoline. Members of the energy agency -- including European counties and Japan -- have not specified how much of their contribution will be gasoline rather than other products. The agency said it was aware that the "most useful contribution" would be gasoline and other refined products.
U.S. officials said oil from its reserves would be auctioned online beginning Tuesday morning and could begin flowing in 11 days. They said foreign governments would also sell their emergency petroleum supplies to companies in the marketplace.
The amount each country is expected to sell is determined by a formula. The United States is required to release the most oil because it is the largest consuming country, officials said.
In 1991, the energy agency released oil from reserves as a result of supply disruptions in Iraq and Kuwait during the Persian Gulf War.
The Energy Department said it also plans to continue lending crude oil to oil companies, case by case. The department already has agreed to several loans.
Some analysts said the International Energy Agency decision will help the United States by putting more supplies on the market, which could bring down prices.
"It's difficult to know at this point how much of an impact it's going to have," said Douglas MacIntyre, an oil analyst with the Energy Department's Energy Information Administration. "It's definitely going to have an impact in helping to lower prices at the pump, although we're talking about lowering prices a couple weeks from now as opposed to immediately."
Lawrence J. Goldstein, president of the New York-based Petroleum Industry Research Foundation Inc., said the effect on retail gasoline prices would vary by neighborhood and state depending on a variety of factors, including supply and demand.
"It's going to do wonders," Goldstein said. "This is all about refined products. Freeing up the companies' ability to tap into the products that are sitting over there was critically important."
But he and others said that before the supplies arrive, there could be shortages. "We basically are going to have to pray that we don't have any named hurricanes and unscheduled refinery outages," Goldstein said. "The next 10 days are going to be very difficult and painful."