US Says to Release Oil Reserves if Needed

reuters.com Tue February 25, 2003 01:05 PM ET By Tom Doggett

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.

Crude prices have in recent weeks risen to two-year highs on fears a war in Iraq, the world's eighth largest oil exporter, could slow supplies from the Middle East, which pumps a third of the world's oil.

The United States has said it will disarm Iraq by force if necessary, despite widespread international opposition to war and concern that rising energy costs could smother a weak world economy.

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.

It can be drawn at a rate of 4.3 million barrels a day for 90 days, before the rate drops as storage caverns are emptied.

The U.S. government sold 17 million barrels of oil from the reserve in January 1991 at the start of the U.S. offensive in the Gulf War.

The 1991 release helped pull oil prices down to near $20 a barrel, but analysts warn that oil inventories are so low that prices would not fall as far this time in the event of a release.

U.S. crude stocks have fallen to their lowest level since 1975 as a decline in imports from strike-bound Venezuela has drained supplies while sustained cold weather has stoked demand.

Heating oil and natural gas prices have recently hit all-time highs, and analysts are warning of big jumps in gasoline prices as summer vacation driving demand heats up.

New York oil prices shed early gains, dropping after Abraham's comments, and were 3 cents lower at $36.45 a barrel at 1:00 p.m. EST.

INDEPENDENT OF THE IEA

Abraham said the United States could release emergency reserves independently of its partners in the International Energy Agency, adviser on energy for 26 industrialized countries.

When asked if the United States had ruled out the possibility of releasing emergency oil on its own, Abraham said, "No of course not."

Abraham also said Washington would at least consult with the IEA before taking any decision to release reserves.

The head of the IEA said earlier Tuesday that strategic reserves in major oil-consuming nations will only be used 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 oil cartel have told the IEA they have enough spare capacity to meet any stoppage of Iraqi exports if there is a war.

Iraq oil exports remained steady at 1.7 million barrels per day (bpd) in the week ended to Feb 21, U.N. officials said on Tuesday.

The IEA's Mandil said its members will expect a commitment from OPEC to cover any shortage very quickly, but could wait for "weeks" for firm evidence of the extra output.

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.