Why Bush Is Dipping Into Oil Reserves
In the midst of a tight Presidential race and with oil prices around $50 per barrel, the Energy Dept. releases crude from the Strategic Petroleum Reserve. Is President George W. Bush pandering for votes while reneging on a promise to save the reserve for true emergencies? Democrats see the hint of a flip-flop. "Under the pressures the White House is seeing, it's not surprising that a chink would appear in the President's armor," says Elwood Holstein, a former Energy Dept. and Office of Management & Budget official who now advises the John Kerry campaign on energy issues.
Hard as it is to believe, though, the move to tap the SPR is more about an immediate need for oil than it is about politics. The Bush Administration acted in response to requests from three refiners, Shell Oil (RD ), Placid Refining, and ConocoPhillips (COP ) that were running short of crude because of disruptions from Hurricane Ivan. The amount of crude released so far -- 3.2 million barrels, or the amount consumed nationally in four hours -- is far too small to affect the price of oil. And the Energy Dept. continues to fill the reserve even as it fields requests for more loans of crude.
Tapping the strategic reserve is consistent with the Bush Administration's announced strategy. As recently as July, an Energy official testified before Congress that the department intended to make available crude from the SPR during periods of major supply disruptions, including natural disasters. Indeed, in October, 2002, the department released about 300,000 barrels as a result of shortages caused by Hurricane Lili.
Hurricane Ivan walloped the nation's most important oil-producing and importing region, the Gulf of Mexico. Tankers from Venezuela and elsewhere were diverted, and a number of oil-producing platforms were damaged. Even now the region's daily production rate is down nearly 30%.
As a result, a number of refiners found themselves short of crude. The releases will tide them over until production platforms in the gulf are repaired or staffed up again. For example, the Hunt brothers' Placid Refining Co. of Port Allen, La., was running about 25% below capacity when it requested supplies from the reserve. The company got 300,000 barrels over the weekend of Sept. 24-26. That will keep the refinery operating at full capacity through the end of October, by which time things should be back to normal, says Placid Refining President Daniel Robinson.
In addition to being accused of emptying the reserve for political purposes, the Bush Administration faces charges that it's keeping oil too expensive by continuing to fill the SPR. Oil-industry consultant Philip K. Verleger Jr. believes that government purchases have added $4 or $5 per barrel to the price of oil. Others would like to see Bush use the threat of future releases to cool the market. Says Tom Kloza, an analyst at the Oil Price Information Service: "By floating the notion that he would release more barrels, it would really send the markets down."
But that would be a major flip-flop for Bush. And considering that he is trying to sell himself to voters as a more consistent leader than rival John Kerry would be, it's a decision the President would have a hard time explaining.
By Christopher Palmeri in Los Angeles and John Carey in Washington