UPDATE 1-U.S. says ready to release oil reserves if needed

www.forbes.com Reuters, 02.25.03, 11:18 AM ET

WASHINGTON (Reuters) - U.S. Energy Secretary Spencer Abraham said on Tuesday the United States was ready to act quickly to release emergency oil reserves if necessary to offset any disruption to Middle East supplies in the event of war with Iraq. "We will and can act quickly to use the Strategic Petroleum Reserve to fortify efforts by producers to offset any severe disruption if it is needed," Abraham told lawmakers at an Senate Energy Committee hearing. "We would make that kind of decision on a release of oil reserves only in consultation with our IEA (International Energy Agency) partners," he added. Crude prices earlier this month hit their highest level in more than two years on fears that possible war in Iraq, the world's eighth biggest oil exporter, could lower supplies from the Middle East, which pumps a third of the world's oil. Oil prices fell after Abraham's comments and by 11:15 a.m. EST were 21 cents lower at $36.27 a barrel in New York. U.S. crude stocks have fallen to their lowest level since 1975 as a decline in imports from strike-bound Venezuela drained supplies and sustained cold weather stoked demand. The head of the IEA, the west's energy watchdog said earlier on Tuesday that strategic reserves in major oil consuming nations will only be used as a last resort should producers fail to make up any supply shortfall. "I believe the producers should act first. Reliance on strategic reserves should be a last resort," said Claude Mandil, Executive Director of the Paris-based IEA. Producers in the Organization of the Petroleum Exporting Countries have told the IEA they have enough spare capacity to meet any outage of Iraqi exports if there is a war. The U.S. emergency oil stockpile was created in 1975 and currently has about 600 million barrels of crude oil stored in deep underground salt caverns in Texas and Louisiana. Oil was sold from the reserve in 1990-91 during the Gulf War. Members of the IEA, formed after the Arab oil embargo in the 1970s to protect consumer nations' interests, include the United States, Germany and Japan and it holds four billion barrels of reserves, equivalent to about 115 days of net imports The IEA will expect a commitment from OPEC to cover any shortage very quickly, but could wait for "weeks" for firm evidence of the extra output, Mandil said.