www.latintrade.com March, 2003

How much pressure can state oil giant Petróleos de Venezuela (Pdvsa) take before it—and Venezuela—cracks?

Depends on whom you ask, but the consensus is that while the company itself is in no real danger, millions of ordinary Venezuelans who depend on the oil business are hanging by a thread. Venezuelan President Hugo Chávez must get the oil flowing again soon or his country’s economy, already on the mat, could be knocked out cold.

Control of roughly US$45-billion-revenue Pdvsa means control of Venezuela, and both Chávez and the strikers flooding the country’s streets know it. The oil sector employs just 1% of Venezuelans, but Pdvsa is the economic motor responsible for some 70% of Venezuela’s foreign exchange income and 43% of government income.

Shaking the Pdvsa tree for the benefit of Venezuela’s poor is Chávez’s plainly stated goal. “We want to favor the people who’ve never seen a drop of petroleum,” says Luis Vierma, the Energy Ministry’s hydrocarbons director.

Laudable, but estimates of the strike’s impact on the national economy during the first 50 days hit $14 billion in lost revenues, or 15% of gross domestic product (GDP). Economists predict that national output could plummet 10% in 2003—40% in the first quarter alone.

“The oil business contributes 50% of the economy of Venezuela, so a 40% decline in GDP is a realistic number,” says Fadel Gheit, senior energy analyst at Fahnestock and Co. in New York. “Absolutely, the economy is going to be a basket case.”

Can Pdvsa itself prosper after these hits? If it can get the oil pumping again soon, probably so, analysts predict. Under normal conditions, the company needs anywhere from $2 billion to $4 billion to operate. In addition, the company must make $1.6 billion in debt payments in 2003, more than $800 million of which is due by the end of March. Pdvsa must continue servicing $3 billion in long-term unsecured debt despite the strike that through the end of January had erased an estimated $600 million in revenues tied to pending oil sales, analysts report.

The government told analysts in January that it will meet obligations using Pdvsa’s $900 million in cash and the company’s $2.4 billion macro stabilization fund.

The fund was established to provide a cushion against macroeconomic instability by setting aside a percentage of Pdvsa revenues. Chávez has gone to great lengths to use it to extract money from Pdvsa since 2001. He recalculated Pdvsa’s macro fund contribution, nearly doubling its payment to 30% from just under 17%. Now, though, it looks like he’ll have to spend a good part of that macro fund fixing Pdvsa—if the money isn’t gone. Chávez admitted taking at least $1 billion from the fund in December 2001 to pay government salaries and bonuses.

“We don’t know if the money is there,” says Edgard Leal, a former Pdvsa executive and director, now a senior associate at the Caracas office of U.S. consultant Cambridge Energy Research Associates. “We don’t know if the government has used it. Pdvsa is no longer managed by a board but by an individual [Pdvsa CEO Alí Rodríguez] who has close links to the government.”

Pdvsa says it could restart operations and be back to nearly normal levels in less than two months, but it is not clear how much damage might have been done to equipment by departing strikers.

Venezuelan heavy crude oil, if not pumped, hardens in the pipes, experts say. (“It just turns to rock,” says one analyst.) Nor is it clear how the government might run a huge state oil company after firing thousands of seasoned professionals. Critics say four months is a more likely time-frame for resumption of full operations.

Apertura. Former Pdvsa CEO Luis Giusti, a Chávez critic, figures the company needs to spend $4 billion a year or lose ground at a rate of 25% of production each year. Under Giusti, who headed Pdvsa for five years until 1999, the petroleum sector opened to foreign investment and dozens of multinational oil companies rushed in. Exports grew as capacity increased.

“By widening the constituent base of the oil sector you expand the economic activity in the country,” says Giusti, now a consultant with the Center for Strategic and International Studies in Washington, D.C. “You generate steady growth.”

Yet four vital heavy-crude projects partly owned by foreigners being built in the country’s vast Orinoco oil belt—Petrozuata, Cerro Negro, Hamaca and Sincor—shut down during the strike; the projects can meet immediate debt payments, analysts predict, but after a couple of months it is unclear how operations can continue. The top 10 foreign oil companies working in Venezuela were losing an estimated $6.7 million in revenue a day, reports energy research firm Wood McKenzie.

Foreigners in the country produce 400,000 barrels per day—15% of Venezuela’s normal output—and were expected to double that figure.

A 2001 Chávez law restricted foreign ownership of new projects, dampening investor enthusiasm. Nevertheless, concessions will have to be a large part of Pdvsa’s future, says Alejandro Bertuol, senior director of the Latin America Energy Group at Fitch Ratings. “[There] is cushion enough, but not for long-term operations and investment,” says Bertuol. “The fastest way for Venezuela to recover is through [foreign] investments.”

Even though oil output has declined in recent years, Pdvsa CEO Rodríguez has said the company will spend $40 billion by 2007 to increase its potential output to 5 million barrels per day from 3 million barrels. Of the investment target, more than $18 billion is expected from foreign partners. Increasing capacity, however, doesn’t mean Pdvsa will produce more oil. Recently head of the Organization of the Petroleum Exporting Countries (OPEC), Rodríguez understands the cartel’s cagey quota game as well as anybody. OPEC-enomics is pretty hard to fathom at times, but here’s the bottom line: Everyone wants to add production capacity, but no one can afford to overproduce.

That’s because OPEC calculates each country’s export quota based on its potential output. It figures out a target price, and then sets production levels accordingly. Since the cartel says each country can export 70% of its potential—not actual—output, it behooves each to have as much capacity as possible, even if the extra capacity remains unused.

Venezuela tried to double output a decade ago, only to find that busting the cartel meant lower overall prices. Since assuming power in 1999, Chávez has transformed the company from an OPEC quota cheater to a strict quota adherent. Production, which once reached 3.6 million barrels per day, dropped to 2.7 million barrels.

Cutting production has boosted international oil prices, but it left thousands of oil workers idle. Pdvsa managers on strike say that pouring more money into government and less into the pockets of oil workers is no way to run a modern economy. “It’s a short-term vision,” says Juan Fernández, leader of Gente de Petróleo, an organization of dissident Pdvsa executives. “(Pdvsa) is sacrificing market.”

Oil industry suppliers are fed up over the sector’s slow decline during the Chávez years, says Fernando Cival, owner of oil and gas processing machinery maker Industrias Vander-Rohe. “Businessmen prefer to close their doors now rather than continue under these conditions in which companies go out of business little by little,” Cival says.

The clearest loser in the battle for Pdvsa is Venezuela’s already-battered economy. Using the stabilization fund to pay short-term Pdvsa debts leaves the country itself with no cushion should the price of oil fall. Anxious to curtail the beleaguered bolivar’s slide, Venezuela’s Central Bank stopped selling dollars in late January. The government, meanwhile, will cut $2.4 billion from spending to offset lost oil revenues. It also announced price and foreign exchange controls.

Fallout. Francisco Toro, an editor at the VenEconomy newsletter, predicts that the strike’s losses in export revenues and taxes will push Venezuela’s public deficit to $15.2 billion, equal to the government’s entire year 2002 budget. “What are they going to do?” Toro asks.

Policy analyst Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C., figures Pdvsa is missing a pile of money on bad deals with foreign oil companies struck by previous administrations. Venezuelan oil drilled by foreign licensees in 2000, he points out, represented 11% of output but 45% of Pdvsa’s costs—four times the company’s internal cost of drilling. “That’s just not explainable,” Weisbrot says. “There’s only so much bullshitting you can do.”

Weisbrot believes Pdvsa management made money hard to find to avoid giving it to Chávez. “They want a big company, because that increases their salaries and their power,” he says. “And there’s probably some corruption in there.”

What’s so bad, then, about running Pdvsa the way Chávez proposes, as an institution to benefit all Venezuelans? “Pemex,” says ex-Pdvsa director Leal, referring to Mexico’s corruption-ridden state oil giant.

Striking oil company employees face house payments, children’s school fees and utility bills, yet they say the sacrifices are worthwhile. Teresa Centeno, 44, a marketing manager in Pdvsa’s natural gas subsidiary, has spent nearly half her life at Pdvsa.

Centeno has two children and now no income, but defending Pdvsa is more important, she says. “This is way beyond my personal situation.”

Author: Mike Ceaser • Caracas Greg Brown • Miami

www.menafn.com Middle East Economic Survey - 17/03/2003

Walid Khadduri and Bill Farren-Price of MEES report on the OPEC Ministerial Conference held in Vienna on 11 March.

OPEC ministers meeting in Vienna on 11 March agreed to maintain present oil production levels and reiterated their collective commitment to supplying global markets as required in an effort to bring stability to oil prices. In a communiqué issued at the conclusion of the ordinary ministerial meeting, OPEC said its decision was motivated by the view that present oil supplies were adequate to meet current market requirements, after taking into account the supply/demand picture for the first and second quarters. The organization said it continued to watch geopolitical developments closely and underlined its readiness to supply the market as required. Ministers welcomed the return of Venezuelan production but insisted that while cold weather and low OECD stocks had contributed to high prices so far in 2003, "the current high price levels above the OPEC price band are predominantly a reflection of uncertainties resulting from prevailing geopolitical tensions." Ministers announced plans for an extraordinary meeting in Doha on 11 June and a subsequent ordinary meeting to be held in Vienna on 24 September.

While there was no mention of Iraq in the final communiqué - marking the desire of ministers to avoid signalling that policy was being formed in expectation of military conflict against a member state - the opening speech by OPEC President and Qatari Oil Minister 'Abd Allah al-'Attiyah was more specific on this count. He said that the Iraq crisis had reduced OPEC's influence on oil prices, even though the group's output decithough the group's output decisions in January had prevented oil prices from even greater rises. Mr 'Attiyah stressed that OPEC was ready to respond to any change in market conditions, whether by bringing remaining group production capacity on-stream in the event of fresh supply disruption or by cutting production should the market become oversupplied in the second quarter as a result of the seasonal drop in global demand and the continued resumption of Venezuelan production.

The ministerial meeting itself, which was not attended by either the Kuwaiti or Iraqi oil ministers, dealt with nominations for the post of OPEC Secretary General, which will become vacant at the end of the year. Ministers also discussed nominations for the post of Secretary General of the International Energy Forum, which is being established in a permanent secretariat in Riyadh. Nominations for the post have been submitted by Norway, Mexico and Italy. Delegations representing non-OPEC oil producers Angola, Egypt, Mexico, Oman and Russia also met with ministers.

OPEC Close To Full Production Capacity The subtext to OPEC's central commitment to keep global markets well supplied was that the group is already producing close to capacity, with only Saudi Arabia and to a much lesser extent several other countries able to mobilize additional production from present levels if required. This was the main reason that the issue of quotas - which are de facto in abeyance during this period - was not a subject for official discussion at the meeting, despite persistent media reports to the contrary. While MEES understands that additional Saudi capacity is being de-mothballed in preparation for use towards the end of March, OPEC's options for substantial new additions to production capacity are now limited. Ministers also now appear resigned to the fact that pure supply fundamentals are no longer sufficient to bring prices back down towards OPEC's preferred $22-28/B price band. In comments made ahead of the ministerial meeting Saudi Oil Minister Ali Naimi conceded that the only way to bring prices down was "to eliminate the drums of war". This point was also made by UAE Oil Minister Obaid al-Nasseri, who pointed to the fact that OPEC had added 3mn b/d of production in the last two months. "This will take care of the market for the time being," he said.

In recent bilateral meetings, OPEC ministers and officials appear to have extracted a commitment from the IEA and the US that the organization will be given the opportunity to address any fresh supply problems - in the event of a war with Iraq - before strategic stocks are released. However, on several recent occasions, OPEC has indicated that it has already proved its commitment to market stability, through its swift ramp-up of production in late 2002 and in January this year, and that any fresh requirement for supply will have to be met by a release of strategic reserves.

Three of the key players in this discussion - Mr Naimi, US Energy Secretary Abraham Spencer and the newly-appointed Executive Director of the IEA Claude Mandil - have all held bilateral meetings in recent days to reiterate their common understanding on this point. At their meeting in Riyadh on 5 March, Mr Naimi and Mr Mandil conveyed their agreement on the use of reserves only after producers had been given an opportunity to address a supply shortfall (MEES, 10 March). Meeting in Brussels on 7 March, Mr Mandil and Mr Abraham stressed their appreciation of producer action already taken to stabilize markets. "The US Government and IEA appreciate the actions of producer nations, which have already increased production to mitigate the effects of the Venezuelan disruption. In light of tight markets, we also appreciate producers' willingness to increase production if necessary to address any further supply disruption," they said in a joint statement, adding that they were committed to ongoing close consultations with producers and would "make additional volumes of oil available to the market to reinforce producers' efforts if needed." After a brief meeting with the Saudi delegation in Vienna, Mr Abraham reiterated US policy that its Strategic Petroleum Reserve would only be tapped if there was a serious supply disruption. He said that he viewed OPEC's commitment to supply the market as positive and added: "We view the reserves as a backstop, an emergency capability to deal with severe supply disruptions."

Supply Scenarios Present Distinct Challenges For OPEC Yet privately, OPEC officials are more concerned about the need to manage the downside pressures on oil prices as they are likely to emerge in the coming weeks and months. A number of possible scenarios each present the organization with different challenges and potential solutions. The first scenario, thought to be the least likely but most benign, would see Saddam Husain step down or be removed internally, short-circuiting US plans for military action. Under this scenario, the war premium would be expected to disappear very swiftly, requiring OPEC to reduce production immediately in order to prevent oversupply and a resulting crash in prices.

A much more likely scenario, under which military action against Iraq is delayed through into 2Q would see the war premium, estimated at $4-6/B, continue, with increased volatility as markets remain under the influence of news headlines. A third scenario sees military action closing Iraqi production for a few weeks if not months. The assumption here is that US forces would need some time to establish security in the country and subsequently mobilize the tens of thousands of Iraqi oil employees. This also assumes vessel nominations and market operations would proceed smoothly enough to provide confidence to customers of Iraqi crudes. OPEC would take up the slack as much as able and reiterate its assurances of supplying the market as needed. Under this scenario, MEES understands that ministers would be unlikely to feel the need to meet until the Doha meeting, where they would be able to take stock of the situation. Certainly, there is a desire among members to avoid politicising what is already a very sensitive situation - which would likely be the effect of an emergency meeting held while any attack on Iraq was underway. This third scenario, if coupled with a continuation of Venezuela's increase in production, would probably require some reduction in group output into 2Q in order to address the seasonal drop in demand. Clearly, further variables to all three basic scenarios - including the precarious state of the global economy - will make OPEC's task in devising appropriate policy responses all the more difficult.

Overall 1Mn B/D Implied Stockbuild In 1Q MEES understands that while the supply/demand balance in January was tight due to the Venezuelan strike, cold weather and US fuel substitution, February and March have seen the market well supplied to the extent that buyers have turned away some extra Gulf cargoes. Moreover, based on initial data for March production and demand, the balance has produced an average contra-seasonal stockbuild of some 1mn b/d in 1Q. According to MEES soundings, OPEC estimated average production of 27mn b/d in 1Q is at least 1mn b/d above the call on OPEC crude in the period, estimated at just less than 26mn b/d. This implied stockbuild has been most pronounced towards the end of the quarter as OPEC production has risen and is expected to start showing up in US stocks data over the coming two to three weeks. For 2Q, the call on OPEC crude is expected to fall to 23-24mn b/d, which on current OPEC production rates would produce an implied stock build of around 4mn b/d. This level of stockbuilding would pressure prices if there was no threat to Iraqi production, since it is well above the more normal seasonal stockbuild of 1.0-1.5mn b/d in 2Q. However, if Iraqi production of some 2.7mn b/d is taken out of the market during the second quarter, then the surplus to call is in line with the seasonal average. Obviously, if Iraqi production continues unhindered, then member states will have to alter their present flat-out production policies and OPEC will have to review its current production ceiling.

reuters.com Mon March 17, 2003 10:43 AM ET By Richard Valdmanis

NEW YORK (Reuters) - Time is running out for extra oil supplies expected from the OPEC cartel to hit U.S. shores and allow the world's biggest fuel consumer to smoothly build gasoline supplies ahead of the summer driving season.

The situation could mark a large problem for the United States, leaving it more dependent on imports than ever at a time when the White House pushes to the brink of war on Iraq and retail gasoline prices hit all-time highs, threatening an economic recovery.

"The U.S. needs large slugs of extra oil to cope with the increase in (refinery) runs, stop the erosion of inventories and to begin to claw back some cover," JP Morgan said in a research note. "The U.S. oil market is undersupplied."

U.S. oil stockpiles have fallen below 270 million barrels, the government's suggested level for seamless operations, as supply disruptions from Venezuela and an unusually long, cold winter drained supplies.

The resulting low oil inventories, near the lowest level since 1975, will prove a problem for U.S. fuel suppliers, who tend to use the brief respite in consumer demand in the second quarter to refine more crude oil and build fuel stocks ahead of higher summer gasoline demand.

"The main problem is that while global oil demand does indeed hit a minimum in (the second quarter), U.S. crude oil runs increase," said JP Morgan, meaning deeper declines in crude supply are likely if imports don't shoot higher.

The U.S. second-quarter increase in crude oil demand averaged roughly 1 million barrels per day in 2001 and 2002, and is expected to be even sharper this year as the industry struggles to buffer paper-thin inventories -- requiring a strong increase in imports.

"There's potential for trouble," said Tim Evans, senior analyst at IFR-Pegasus. "Low crude inventories limit the extent to which higher refinery rates can be sustained. But the cavalry rising up over the hillside is represented by OPEC, which has already started pumping away."

OPEC, which accounts for 60 percent of world oil exports, has signaled it will defend against global short supply by upping shipment volumes even as the group declines to lift its official production curbs due to worries over overall weakness in global demand.

OPEC powerhouse Saudi Arabia has already raised production sharply in the first two months of this year to make up for lost Venezuelan supply. Tanker brokers said on Friday the kingdom snapped up 14 tankers to move 29.5 million barrels of crude oil to the U.S. Gulf for May delivery.

So far, the increased production has yet to translate into higher U.S. crude stockpiles.

And, while Saudi Arabia has reassured the market it will continue to pump more oil in the event of a war, there are doubts whether Riyadh has enough spare capacity to compensate fully for disruptions from Iraq, which has a sustainable export capacity of 2.2 million bpd.

The International Energy Agency in a monthly report on the oil market outlook released on Wednesday estimated that OPEC in total has only 900,000 bpd to spare, with 400,000 bpd in Saudi.

If crude supplies become scarce enough to hinder the U.S. oil industry's attempt to build up gasoline supplies before summer, pump prices are likely to continue to surge, pushing through record levels.

The average retail price of gasoline in the United States on Saturday was $1.719 a gallon, a new all-time high, according to the American Automobile Association's latest survey.

The inventory situation in the U.S. has worried the White House enough to consider the use of a release of the nation's Strategic Petroleum Reserve -- a move reserved for only the most dire of supply crunches.

U.S. Energy Secretary Spencer Abraham said on Friday Washington reserved the right to make a unilateral release of crude from the emergency reserve in the event of a severe supply disruption. The statement came after a similar comment from Japan, which said it would tap its reserve if Iraq is invaded by U.S.-led forces.

reuters.com Mon March 17, 2003 10:33 AM ET By Alister Bull, European Economics Correspondent

FRANKFURT, March 17 (Reuters) - A second Gulf War could trigger recession in the euro zone, European officials said on Monday as markets braced for an imminent invasion of Iraq.

Central banks in Germany and Italy warned that the global economy was being harmed by the tension and the European Commission said a lasting spike in oil prices could heap more damage on the spluttering euro zone economy.

"A stagnation or even a recession in the euro area cannot be excluded," the Commission said in its 'worst-case' assessment of what a U.S.-led attack on Iraq could mean for the euro zone.

It has also almost halved its estimates for euro zone growth in 2003 and says hopes for a recovery next year depend on the uncertainty around Iraq being dispersed.

As a result, the Commission now expects only around one percent growth this year, from 1.8 percent forecast back in November, and that is before the fallout of a war is felt.

Countdown to the conflict is being figured in hours, not days after U.S. President George W. Bush told Iraq on Sunday it faced a 'moment of truth' and the United Nations was advised to pull its weapons inspectors out of the country.

The Bundesbank said in its monthly report on Monday that the tensions were taking a heavy toll and the Italian central bank said a prolonged fight would hit the industrial world hard.

"The rhythm of growth in the principal industrial economies could end up falling, even significantly," it said in a twice-yearly assessment of economic conditions.

Oil is the main channel through which the war will make itself felt in the pockets of the industrial world by cutting consumer spending power, although lower business and household confidence and international trade can make matters worse.

SHORT WAR GOOD

Klaus Regling, head of the European Commission's economics department, told a news conference in Brussels that a swift war would have only relatively mild implications for growth.

Outlining this benign scenario, the Commission reckoned oil prices would peak at $50 per barrel during a quick war, but be back to around $26 per barrel by the third quarter of 2003 and this would cost less than 0.1 percentage points in GDP growth.

This mirrored the experience of Gulf War One, when allies evicted Iraq from Kuwait in January, 1991 in ground fighting which was over in a matter of days and oil prices fell under $20 per barrel after peaking around $40/barrel.

Unfortunately, this time around the euro zone economy is in a much more fragile state. Germany is tilting towards another recession and business and consumer confidence has already been mauled by the steepest stock market losses for 70 years.

LONG WAR BAD

"Given that the political and economic situation currently appears more precarious than in 1990-1991, a more substantial and lasting impact on confidence is also possible," the Commission said in its quarterly economic report.

Plus, the state of world oil supplies is also much tighter following a strike in Venezuela and recent cold weather, which could prevent a repeat of 1991.

As a result, if the damage done to world oil supplies turned out to be more serious, oil prices could spike to $70 per barrel and stay high for much longer.

If this translated into a more or less permanent increase in the price of oil, the Commission estimates that the damage to growth could be up to 0.8 percentage points of GDP over the next two to three years.

"In the worst-case scenario we assume a sharp deterioration of confidence, a higher risk premium and further declines in equity markets. A negative impact on world trade, global capital flows, investment and tourism also cannot be excluded," he said.

biz.yahoo.com Reuters Monday March 17, 4:34 pm ET

NEW YORK (Reuters) - World oil prices eased further on Monday as dealers wagered that the looming war in Iraq would be short and inflict only limited damage on Middle East oil flows.

The possibility that the United States could release oil from its 600-million-barrel emergency oil stockpile further weighed on prices, which have fallen more than eight percent over the last three trading sessions.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

U.S. light crude futures (CLc1) dropped 45 cents to $34.93 per barrel, down from a 12-year high of $39.99 hit late last month. That is $6 short of a $41.15 all-time peak during the 1990-91 Gulf War crisis.

Brent crude oil (LCOc1) fell 65 cents to $29.48 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war."

Prices fell as the United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way to launch war without Security Council authority.

Speculative investors that fueled a 60 percent rise in oil prices in just over three months are now selling to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices sank from over $30 to barely $20 when the U.S. launched its January 1991 offensive as it became clear that Iraq would not harm oilfields in Saudi Arabia.

But prices could quickly go back up if Iraq inflicts substantial damage on its own oilfields, or the war is prolonged, analysts said. Iraq and its Gulf neighbors together pump about 40 percent of global crude exports.

U.S. plans to quickly secure Iraq's northern Kirkuk oilfields in the event of war has also been undercut by Turkey's refusal to let U.S. troops through its territory.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

NO MARGIN FOR ERROR

A cold winter and prolonged supply hitch from Venezuela simultaneously drained commercial stockpiles to historic lows, and the OPEC (News - Websites)oil cartel has little spare production capacity to cover further supply disruption.

U.S. gasoline pump prices have already hit a new all-time high of $1.73 a gallon for an average price of regular unleaded, the government said on Monday. A sustained increase in energy costs could further weaken an already soft economy, analysts say.

Iraq's U.N.-supervised oil exports, which recently averaged almost two million barrels daily, will slow to a trickle this week as dealers have already stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle early on Monday. The United Nations later announced that it was pulling out all inspectors, including oil monitors.

Further pressuring prices, the chairman of the U.S. House Energy and Commerce Committee said the Energy Department told him the Strategic Petroleum Reserve is ready to release oil to counter a disruption in crude supplies, if necessary.

"The SPR has, for some time now, transitioned from the 'fill' mode to the 'flow' mode and is prepared to flow upon orders from the President," Republican Rep. Billy Tauzin said in a letter to fellow lawmakers.

The United States and other members of the International Energy Agency (IEA), which comprises 26 industrialized nations, has said that it will allow OPEC oil producers to try to cover any shortages in war, releasing inventories from emergency stockpiles only as a last resort.

The IEA built strategic oil reserves after the 1974 Arab oil embargo. They were last used in the 1990-91 Gulf War after Iraq's invasion of Kuwait.