Administration asked to tap emergency oil reserve

Political unrest in Venezuela prompts concern Wednesday, December 25, 2002 Posted: 11:32 AM EST (1632 GMT)

WASHINGTON (AP) -- The Bush administration faces renewed requests to free oil from an emergency government reserve and counter tight supplies, especially at Gulf Coast refineries, because of political unrest in Venezuela.

The administration plans no such move, however, according to senior officials, although they said the Venezuelan situation was being watched closely.

Rep. Billy Tauzin, R-Louisiana, chairman of the House Energy and Commerce Committee, urged the administration this week to give strong consideration to tapping the government's Strategic Petroleum Reserve. He said several refineries along the Gulf Coast are close to running out of oil.

"As the economic crisis in Venezuela continues, its impact on the economy of the United States is becoming more pronounced," Tauzin wrote Energy Secretary Spencer Abraham in a letter sent Monday.

Oil prices jumped to more than $32 a barrel this week, the highest they've been in two years. Analysts cited the freeze of oil exports from Venezuela and continuing worries about possible war in Iraq. Venezuela normally accounts for about 1.3 million barrels of oil a day entering the U.S. system, about 14 percent of oil imports.

"Currently lending or exchanging oil from the Strategic Petroleum Reserve is not an active consideration," the Energy Department said in a statement last week when rumors circulated within the industry that tapping the reserve was being discussed.

White House spokesman Ari Fleischer said the emergency oil stockpile, now about 592 million barrels, is designed to deal with severe disruptions, and so far that has not occurred.

Monitoring situation

"Obviously, we're going to continue to monitor the situation very closely," Fleischer said last week. "But at this time we do not think the release is necessary."

Tauzin said the cutoff of Venezuelan shipments could cause at least two refineries to run out of crude oil by the end of the month unless Venezuela's supplies were resumed.

Government stocks are kept in salt domes along the Gulf coast in Louisiana and Texas. On several occasions, the government has provided small amounts from the reserve to specific refineries to meet temporary shortfalls, with the understanding the oil would be paid back.

Generally the reserve, which can provide as much as 4.1 million barrels a day, is to be used only in case of severe supply interruptions.

The reserve was tapped for 21 million barrels in 1990-91, in response to Iraq's invasion of Kuwait and the Gulf War; 28 million barrels in 1996-97, to pay for government operations; and 30 million in 2000, to stem soaring prices, in a swap arrangement in which companies are obligated to return the oil, plus a premium, by 2003.

President Bush strongly criticized the swap arranged by the Clinton administration in 2000, arguing during the presidential campaign that the reserve should be used only to combat severe supply shortages and not to influence prices.

On Tuesday, oil prices for February delivery eclipsed $32 a barrel before declining slightly. Spot prices on the New York Mercantile Exchange also nudged close to $32 a barrel in trading Tuesday.

A 23-day general strike in Venezuela against President Hugo Chavez essentially has halted Venezuela's oil exports. The country normally produces about 3 million barrels a day, more than a third of which is shipped to the United States. Production now is 300,000 to 400,000 barrels a day.