Views on commodities and energy
Time to top up strategic oil reserve?
The Bush administration could take advantage of falling oil prices and plummeting fuel demand to replenish millions of barrels of crude into the U.S. emergency petroleum stockpile.
The Energy Department is sitting on a hefty $584 million it raised from selling 11 million barrels of crude to refiners from the Strategic Petroleum Reserve in 2005 after Hurricane Katrina laid waste to the country’s energy infrastructure. The department wanted to replace the sold barrels, but balked at the cost as the oil price marched relentlessly higher, hitting a record above $147 a barrel in July.
But with a weak economy, crude costs have fallen by more than half to $55 a barrel this week. That is close to the same price the Energy Department sold those 11 million barrels of oil three years ago.
If the department doesn’t use the cash in its piggybank before the Bush administration comes to an end on Jan. 20 some lawmakers want the new Obama administration to use the money to promote alternative energy.
The Energy Department said it is “examining and analyzing” the idea of buying oil for the stockpile now that prices have fallen, but no decision has been made.
Guy Caruso, the former head of the department’s Energy Information Administration who now works at the Center for Strategic and International Studies, said buying the oil back at a delivery rate of 100,000 barrels a day for three and half months would have little market impact and not raise prices.
“With demand being down now, there’s a lot more excess production capacity. I think producers would love to have a new customer,” Caruso told Reuters. “I think now is an excellent time to do it, unless you’re thinking wait a couple of months and it might be lower,” he added.
The U.S. emergency oil reserve, created by Congress in 1975 after the Arab oil embargo, holds 702 million barrels of crude, but has room for 727 million barrels. The department plans to add 7.7 million barrels of oil to the stockpile from January through May of next year, which would return barrels loaned to refiners this summer when Hurricanes Gustav and Ike disrupted supplies.
– Tom Doggett