OIL RESERVE

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ok,i could use some help on this one. the second section called "delaying deliveries" --- i've read it a number of times but still DGI. would appreciate some comments on this.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Oil%20News&touch=1&T=energy_news_story.ht&s=9835d5ed0956cd79e1c683ba6a4d06a6

Oil News Thu, 27 Jan 2000, 12:04am EST

1/26 22:29 U.S. Rules Out Tapping Oil Reserve to Reduce Prices (Update2) By Richard Keil U.S. Rules Out Tapping Oil Reserve to Reduce Prices (Update2)

(Adds Bradley call for release of oil in third paragraph.)

Washington, Jan. 26 (Bloomberg) -- Energy Secretary Bill Richardson ruled out tapping the nation's Strategic Petroleum Reserve to combat climbing oil prices. ``Those are used for emergencies,'' Richardson said in a statement today. ``I do not anticipate using the reserves at this time.''

Richardson has been under pressure to use the fund to curb rising gasoline and heating oil prices; New York Democratic Senator Charles Schumer has pressed for it. Tonight, presidential candidate Bill Bradley criticized the administration's decision in a New Hampshire primary debate against Democratic frontrunner Vice President Al Gore. Bradley, a former New Jersey senator, called for letting oil out of the reserve to bring down prices.

The price of crude oil, used to make heating oil, has risen 12 percent this month as inventories have dropped. The Organization of Petroleum Exporting Countries and other producers have reduced output by about 5 million barrels a day, or 7 percent of total supply, from February 1998 levels.

Heating oil for February delivery rose as much as 5.26 cents, or 6.2 percent, to 96 cents a gallon on the New York Mercantile Exchange, closing today at 92.13 cents, after the American Petroleum Institute reported that U.S. inventories dropped to a 2 1/2-year low with at least six weeks of winter demand remaining.

Richardson said President Bill Clinton believes ``the market should dictate prices,'' rather than ``any manipulative mechanisms.''

Delaying Deliveries

At the same time, the Energy Department said it's seeking to renegotiate contracts with Equiva and Vitol, which market oil for several Gulf Coast producers.

The department said it contracted for 28 million barrels of oil to be delivered to the reserve's facilities in Texas and Louisiana from the Gulf of Mexico. The companies that have the contracts are willing to consider delaying delivery of 5 million barrels, a department statement said. ``Given today's market conditions, it simply makes sense to renegotiate these deliveries,'' Richardson said in the statement. ``The companies have indicated a willingness to discuss putting additional oil into the SPR if we postpone delivery dates. This would mean more oil supply, greater energy security and a better deal for the American taxpayer.''

Vitol officials declined to comment. Officials at Equiva, a joint venture of Royal Dutch/Shell Group and Texaco Inc., couldn't be reached for immediate comment.

Analysts said it could help the market to have more oil available outside the reserve, although the contract is too small to have a major effect. ``Five million barrels is not even one day's supply in the U.S.,'' said John Saucer, an energy analyst at Salomon Smith Barney Holdings Inc. in Houston.

Heating Oil Relief

To ease the burden on lower-income Americans during this week's cold weather, Clinton yesterday said he'll boost federal assistance to families in New England through the Low Income Heating and Energy Assistance Program, which helps the poor buy heating oil during the winter and air conditioners during summer heat waves.

The Strategic Petroleum Reserve holds almost 600 million barrels, roughly two months of imports.

The U.S. government set up the reserve in 1975 to provide an emergency supply of oil in the event of a crisis, such as the 1973 Arab oil embargo that sent inflation in some countries skyrocketing.

The inventory has only been tapped for emergency purposes once, during the Persian Gulf War in 1991. There have been two test sales, one in 1985 and one in 1990. In fiscal 1996 and 1997 28 million barrels of oil were sold by congressional mandate for budgetary purposes.

-------------------------------------------------------------------------------- ) Copyright 2000, Bloomberg L.P. All Rights Reserved.

-- boop (leafyspurge@hotmail.com), January 27, 2000

Answers

Leafy, My guess is that 5m/ba of the original 28m/ba destined for the SPR would be diverted to the domestic market immediately. That would leave 23m/ba for deposit into the SPR, but the DOE would still have to negotiate the purchase of that 5m/ba to complete the terms of the original purchase contract. In short, delivery of (at least?) 5m/ba of oil would presumably be made to local markets -- delaying its deposit into the SPR. It seems like dropping 5m/ba of oil in the US market is, however, hardly a drop in the bucket. Since it's such a minor amount of oil, relative to US import demand, it suggests (to me) that the government isn't so secure about releasing SPR stocks in any substantial amount just yet -- and probably won't be willing to do so until they're forced to (through still higher prices and greater consumer outcry). The SPR is designed to hold 600m/ba of oil but, in actuality, holds about 25m/ba less than that. I think the DOE's attempt to divert deliverable SPR oil to the local market is a clue that it's not ready to empty stocks already in its possession.

-- (cashtradr@aol.com), January 27, 2000.

One can only hope they are reluctant.

What is it about these liberal folk who see rising prices in the oil markets and at the gas pumps as strategic emergencies????

Chuck

-- Chuck, a night driver (rienzoo@en.com), January 27, 2000.


Chuck,

It's easy to call for sale of the SPR oil if you're not responsible for what happens down the line. Plays good in Peoria. Bradley knows that Gore is linked to the current administration, and that Gore doesn't dare agree with releasing the oil, so it's a good debating point......the others are just playing to their constituents. "See, I called on the pres to release the oil to help you out. Remember me when it comes time to vote.....yes, yes, yes."

-- rocky (rknolls@no.spam), January 27, 2000.


They will not release any oil -look at the British navy fuel problems. And the fact that we no longer control the Panama Canal.

-- Juan Valdez (vgd38@hotmail.com), January 27, 2000.

From a post above "OT U.S. May Be Heading for a Gasoline Crisis, Petroleum Argus Warns"

"Spot gasoline prices in the U.S. are already as high as in 1996, when President Clinton speeded up a draw-down from the Strategic Petroleum Reserve to calm markets and boost his re-election campaign. Gasoline demand this year will approach 8.5 million barrels per day, 7 percent higher than in 1996, yet stocks are lower, providing less cover. It may already be too late to rebuild stocks in time to cushion peak demand, and this threatens regional shortages and price spikes."

Does the Admin. really believe the Oil Reserves are only for emergencies?

-- Just Curious (jnmpow@flash.net), January 27, 2000.



The SPR oil is just as safe as the Gold in Ft. Knox.

-- Possible Impact (posim@hotmail.com), January 27, 2000.

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