Obama Oil Release Called ‘Easiest’ Move, With Scant Long-Term Price Impact
Obama’s Oil Release Seen Having Little Long-Term Impact
Shane Bevel/Bloomberg
Fuel tankers stand in line at the Magellan Pipeline facility in Tulsa, Oklahoma, U.S.
Fuel tankers stand in line at the Magellan Pipeline facility in Tulsa, Oklahoma, U.S. Photographer: Shane Bevel/Bloomberg
June 23 (Bloomberg) -- Fadel Gheit, an analyst at Oppenheimer & Co., talks about the International Energy Agency's announcement today that it will release 60 million barrels of oil from emergency stockpiles to alleviate possible shortages following the loss of Libyan crude. It is the third time the Paris-based agency has coordinated the use of emergency stockpiles since the agency was founded in 1974. Gheit speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
U.S. Will Release 30 Million Barrels of Oil in IEA Program
U.S. Department of Energy
A technician inspects a pipeline valve at the Strategic Petroleum Reserve Bryan Mound site near Freeport, Texas. The U.S. reserve holds 727 million barrels of crude oil in caverns along the Gulf of Mexico coast. It was established to counter supply disruptions after the Arab oil embargo of 1973 to 1974.
A technician inspects a pipeline valve at the Strategic Petroleum Reserve Bryan Mound site near Freeport, Texas. The U.S. reserve holds 727 million barrels of crude oil in caverns along the Gulf of Mexico coast. It was established to counter supply disruptions after the Arab oil embargo of 1973 to 1974. Source: U.S. Department of Energy
President Barack Obama’s decision to tap into the U.S. Strategic Petroleum Reserve ahead of family road trips for the July 4 holiday probably won’t provide a long- term solution to high oil prices.
The International Energy Agency’s decision yesterday to release 60 million barrels of oil over the next month, half of it provided by Obama from the U.S. reserves, pushed the commodity’s price down as much as 6 percent.
“Clearly it had an effect, but I don’t think it’s going to have a long-term effect on the market,” Amanda DeBard, an energy analyst at the Potomac Research Group in Washington, said in an interview. “This was definitely the easiest and the quickest thing to do, but I don’t really see a clear path from here.”
Obama made the move in anticipation of increased demand during the U.S. summer driving season, according to administration officials who briefed reporters yesterday on condition they not be named.
Some of Obama’s fellow Democrats said the release from the strategic reserve was too little or too late a response to the strife in Libya that has disrupted Middle East oil supplies.
Senator Charles Schumer, a New York Democrat, described the U.S. release as “this dollop.” Senator Jeff Bingaman, a New Mexico Democrat who heads the Energy and Natural Resources Committee, said the plan would have been “more timely” had oil been released when Libyan supplies were first disrupted.
Oil industry groups said Obama needs to speed drilling in the Gulf of Mexico and Alaska’s Beaufort and Chukchi seas and on federal lands to bring oil prices under control.
‘No Supply Emergency’
“There is no supply emergency,” Bill Bush, a spokesman for the American Petroleum Institute, said yesterday in an e- mail. “We could and should be taking steps that would increase our own production by 2 million barrels a day or more for decades.”
The Washington-based trade group, which has Exxon Mobil Corp. (XOM) and BP Plc among its 470 members, supports Republican legislation to expedite permits for drilling in the Gulf and off Alaska.
Representative Doc Hastings, a Washington Republican who heads the House Natural Resources Committee, said Obama misused the reserve.
“The Strategic Petroleum Reserve is intended for situations when there’s a dramatic supply shutdown, not to achieve short-term political gain,” Hastings said in a statement.
Stored in Cavern
The U.S. has 727 million barrels of crude oil stored in caverns along the Gulf of Mexico coast. The reserve was established to counter disruptions after the Arab oil embargo of 1973 to 1974.
The U.S. previously had released oil from the stocks 17 times since 1985, most recently in 2008 after hurricanes Gustav and Ike struck the Gulf Coast.
Average prices for gasoline at the pump have declined for 20 consecutive days, and fell to $3.61 a gallon on June 22, according to the AAA travel group. The price was $2.74 a gallon a year earlier and reached a high of $3.985 on May 4, the group said.
The U.S. first brought up the idea of collective action of the International Energy Agency member countries in April, after the IEA said Saudi Arabia had failed to make up the entire shortfall caused by the fighting in Libya, according to one of the Obama administration officials who briefed reporters.
Middle East Meetings
In meetings in Saudi Arabia, Kuwait and the United Arab Emirates, the U.S. delegation discussed ways to prevent the turmoil in oil markets from harming the world economy, the official said. Obama raised the matter at the G8 summit in Deauville, France, at the end of May.
After a contentious OPEC meeting the following month, Saudi Arabia announced June 8 it was increasing production and it became clear that releasing oil from the Strategic Petroleum Reserve could be useful before the Saudi increase came to market, the official said.
Obama signed the order directing the U.S. to coordinate a release with the International Energy Agency on June 17.
This is the third time the IEA coordinated releases from emergency stockpiles since the agency was founded in 1974. Oil was released during the 1991 Persian Gulf War, and after Hurricane Katrina damaged oil rigs and refineries in the Gulf of Mexico in 2005.
The agency acted 15 days after OPEC ministers kept production quotas unchanged as Saudi Arabia didn’t find enough support from other members to boost supply amid oil prices above $100 a barrel in London.
To contact the reporters on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net
To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net
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