US ready to sell reserve oil if Y2K problems arise ---

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Wednesday November 24, 2:44 pm Eastern Time

US ready to sell reserve oil if Y2K problems arise

By Tom Doggett

WASHINGTON, Nov 24 (Reuters) - The U.S. Department of Energy says if a Y2K computer problem causes a disruption in oil supplies it is prepared to sell crude oil from the nation's Strategic Petroleum Reserve (SPR).

The Energy Department has drawn up emergency plans to sell oil from the Strategic Petroleum Reserve (SPR) if necessary, but a drawdown is far from definite, said spokesman Robert Porter.

Should the need arise, crude oil could be withdrawn from the U.S. emergency stockpile and moved into the market in just 15 days, he told Reuters in response to queries about the department's Y2K preparations.

``I don't want to send out alarming signals that we are gearing up for an inevitable SPR drawdown because of Y2K. But we do go through the precautionary preparations for that,'' Porter said.

The Y2K problem refers to concerns that older computers and their software, which use the last two digits for the year in dates, may fail to recognize 2000 or mistake it for 1900, causing a crash on Jan. 1.

The possibility of supply disruptions due to Y2K computer problems combined with oil prices hitting nine year highs have prompted U.S. legislators to take a fresh look at the function of the Strategic Petroleum Reserve (SPR).

The SPR was created by Congress in the mid-1970s after the Arab oil embargo. It holds 571 million barrels of oil in underground salt caverns in Texas and Louisiana.

Last week, Democrat Charles Schumer of New York and Republican Susan Collins of Maine introduced a Senate bill that would allow sales of reserve oil if prices stayed above $25 a barrel for two weeks.

``With crude oil prices now approaching levels not seen in a decade, it would be in our nation's best interests if the president would consider releasing oil from our Strategic Petroleum Reserve,'' the lawmakers said in a letter to President Clinton on Tuesday.

On Monday, Energy Secretary Bill Richardson said that a sharp rise in world crude oil prices and Iraq's decision to halt its oil exports were not reason enough to open the spigot on the emergency stockpile.

U.S. crude prices this week soared to the highest level since the Gulf War, topping $27 a barrel on Monday after Iraq confirmed it would halt oil exports.

Under the Energy Department's contingency plan, Clinton would decide whether a reserve oil sale is necessary, with recommendations from the Energy Department.

``Once the president decides a drawdown of the SPR is necessary, then from the time he makes that decision until the time we move oil into the market can be as short as 15 days,'' Porter said.

He declined to say what specific thresholds must be reached to trigger a department recommendation for an SPR sale.

``We would prefer not to unduly influence the market by trying to give some pre-defined trigger,'' Porter said.

Still, he said department officials will be reviewing U.S. petroleum stock levels leading up to Jan. 1 and what -- if anything -- happens to foreign oil supplies after that.

``We'll be looking at the whole situation as we approach Jan. 1 and the aftermath of the Y2K rollover,'' he said. ``We'll be looking at all factors that influence the movement of oil.''

For example, if supplies drop sharply during the week before New Years from drivers rushing to fill their gasoline tanks, Porter said just the announcement of an SPR sale may be enough to reassure consumers that plenty of oil is available and the reserve sale could then be canceled.

``You could very well see the effect of an announcement being sufficient to calm markets and determine that supplies were adequate and never proceed with the actual sale,'' he said.

``Once you start the cycle, it does not mean that you can't stop it. It's not on autopilot,'' Porter said.

A similar situation occurred at the beginning of this decade when the Energy Department offered to sell 33 million barrels of reserve oil when Iraq invaded Kuwait.

When President George Bush announced the stockpile sale, oil prices began to stabilize and only 17 million barrels ended up being sold from the reserve, Porter said.

-- snooze button (alarmclock_2000@yahoo.com), November 26, 1999

Answers

>oil available in fifteen days

Uh, crude, that is. Then it gets refined. Then transported.

Another supply chain....and no fifteen day delivery to a pump near you.

-- cgbg jr (cgbgjr@webtv.net), November 26, 1999.


They are looking as we approach 1/1. What foresight! Amazing. I'm impressed.

-- Mara (MaraWayne@aol.com), November 26, 1999.

On Monday, Energy Secretary Bill Richardson said that a sharp rise in world crude oil prices and Iraq's decision to halt its oil exports were not reason enough to open the spigot on the emergency stockpile.

Snip

No, but they are reason enough to trot out the old "SPR" story once again. As you'll recall from Gulf War, the threat of sales of SPR bbls were enough to signifigantly cool a spooked crude market. This is the same thing. Billy and friends are probably a little nervous as they obviously didn't see this one comming. My guess is that old Willie has us way behind the curve on a lot of foreign affairs and strategic dot.mil issues. The guy is simply not a global player. He was a backwater governor who was conveniently ambitious enough to allow some drugs for guns smuggling through his state for the big boys. My guess is they didn't anticipate him being savvy enough to parlay that into a presidency. To bad for them, to bad for us.

Anyway, if they were to turn on the spigots, which they could in an emergency, they can pump out a maximum of 4 million bbls per day of crude. Don't get me wrong, if TSHTF the SPR will look like manna from the sky, but it won't fix everything, and if the Texas shipping channels or other SPR locations get gummed up by other issues, it will be a whole other ballgame.

This is simply an attempt by the Clinton admin to take some of the inflationary bite out of the rise in commods, which can't be denied as "good for the economy". Poor willy, never saw the shifting sands of Opec lining up against him and us. Never saw the new guard moving in to help the old men of Opec see the light. Never saw us being repainted as the "Great Satan" once again. They invited Sadamm to the freaking OPEC meeting for chrissakes!

Keep prepping. Not much time for the herd shift now.

-- Gordon (g_gecko_69@hotmail.com), November 26, 1999.


And while we are discussing petroleum products, I wanted to point out that unleaded regular gas is now $1.50 a gallon here in CT. A good indicator of things to come, IMHO.

-- Irving (irvingf@myremarq.com), November 26, 1999.

> ``You could very well see the effect of an announcement being sufficient to calm markets and determine that supplies were adequate and never proceed with the actual sale,'' he said.

``Once you start the cycle, it does not mean that you can't stop it. It's not on autopilot,'' Porter said.

Okay, now we know, it's going to be swirls of lies to control the sheeple and keep em chasing dangled carrots. The "gobmint" will say anything.

-- Paula (chowbabe@pacbell.net), November 26, 1999.



Does anyone have any info on how long 571 million barrels would last?

Jeannie

-- jhollander (hollander@ij.net), November 26, 1999.


jhollander,

I think the United States is now using around 20 million barrels per day, which means that our reserve supply would last around 28 days. Also, our main supplier is Venezuala, and they are far from convincing that they are ready to deliver our normal supply.

The problem as I see it is not the existence of the supply, but moving it. What good is all of this oil going to do if refineries are broken, tanker trucks are broken, and gas stations are broken?

The refineries admit that they have not fixed embedded systems, and will wait until they fail. They say they have contingency plans ready. But what kind of contingency plans do you use for a broken refinery... buckets?

My conclusion: The supply problem (not "shortages" per se) is going to be more severe than during the Gulf War, and more severe than during the late 70's. Gas prices are going to skyrocket immediately next year, inflation will take off, and we will be going into a recession. Whether or not it becomes a depression depends on the length of time it takes the refineries to get back to normal (I estimate at least 6 months), and the reaction by the stock market.

-- Hawk (flyin@high.again), November 26, 1999.


If more people are becoming worried about potential oil shortages, why don't the oil stocks reflect this. They should be starting to fly high right now, but they seem to be undervalued and underpriced if oil will be in demand and short supply.

The oil patch is going great guns here in Alberta, unlike last year, but the stock prices are still hovering around the prices of 3 months ago.

-- Laurane (familyties@rttinc.com), November 26, 1999.


---Laurane--we're doing our share down heyah in jawjah! got me another 4 can o wally world camp gas today! p.s. any more funny critter stories? I loves em!

yore pal, zoggus

-- zog (zzoggy@yahoo.com), November 26, 1999.


Laurane,

"If more people are becoming worried about potential oil shortages, why don't the oil stocks reflect this."

There are many reasons, but here's a few I can think of...

First, most people are NOT becoming worried, because most people have only heard the typical media whitewash which only brushes the surface of the subject. They have been told that the oil companies are "ready" (which means they have contingency plans), but most still do not know the difference between Y2K "ready" and Y2K "compliant."

They may be correct in assuming that with respect to software problems, many businesses will be able to function satisfactorily with workarounds and fix on failure. However, I think there is a huge lack of awareness regarding the implications of the embedded systems situation, particularly in an area as crucial to the economy as oil.

Also, there seems to be this egocentric mentality within the stock market in which investors believe that the stock market ALWAYS discounts the future. True, for the most part, the stock market has already taken Y2K into consideration, but the mistake they are making this time is that most investors haven't done their homework. To fully understand the nature of Y2K problems they need to do a lot more than just read what Mr. Greenspin says about it in the newspaper.

Personally, I think it is too risky to be in the market at all right now, but for those who insist on being in I would think it would be wise to get out of all businesses which will be severely hurt by oil supply problems (travel, transportation, etc...). How long the price of oil will continue to rise is hard to say, but I think buying some options for the short term would be a pretty safe bet.

-- Hawk (flyin@high.again), November 26, 1999.



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