FOCUS-U.S. Energy Dept seeks to swap stockpiled oil

By Tom Doggett

WASHINGTON, Jan 30 (Reuters) - The U.S. Energy Department has proposed putting millions of barrels of crude oil from the national Strategic Petroleum Reserve (SPR) on the market through oil swaps with energy companies, a government official said on Sunday.

While the long-term goal of the plan is to eventually put more oil back into the reserve, a short-term side effect of the additional supplies from the proposed swap could be to lower crude oil prices, which have recently hit nine-year highs, said the official, who asked not to be named.

Under the department's plan, oil firms would submit bids to take oil from the reserve and then sell it in the market. Instead of paying the government cash for the reserve oil, the companies would replace the crude at a future date with more product.

The plan is being reviewed by the White House, and a decision on the proposal may come in as soon as two weeks, the official said.

Under the plan, a company could "pay" for one barrel of high-priced swapped oil by replacing it with two or three barrels in the future when oil might cost less, explained the official.

"In order for us to exchange oil and get more in return, we need to take advantage of current market conditions," said the official, referring to high energy prices that would make selling swapped reserve oil so profitable for firms. "We have to be able to respond quickly."

The winning bids would be from those firms that could quickly replace swapped oil with the most new oil. The department would want any swapped oil replaced within 12 months, the official said.

The emergency reserve was created by Congress in the mid-1970s following the Arab oil embargo. The stockpile holds 567 million barrels of oil in underground salt caverns in Texas and Louisiana.

Details of the department's proposal were first reported in the new issue of Time magazine, which hits newsstands on Monday.

Energy Secretary Bill Richardson would not need congressional approval to swap the oil, because he already has the authority to manage the reserve and fill it with oil "through either exchanges or purchases," the official said.

The official said the department did not spell out in its proposal how much oil it expects, or hopes, would be swapped, because it would depend on the bids that were received.

However, the official said that oil could be withdrawn from the reserve at a maximum rate of four million barrels per day.

The U.S. consumed last month an average 19.8 million barrels a day of crude oil and refined petroleum products, such as gasoline and heating oil, according to department data.

Despite pressure from some members of Congress and state governors, Richardson has insisted that he would not sell oil from the reserve to lower crude prices.

The department's plan would allow him to continue following that policy, because he would eventually fill the reserve with more oil to handle any future supply disruptions, the official said.

Northeast lawmakers, whose constituents use most of the nation's home heating oil, have urged that reserve oil be sold to push down heating oil prices that have skyrocketed due mostly to production cuts made by the Organization of Petroleum Exporting Countries (OPEC).

Richardson has begun talking with OPEC members and other major U.S. oil suppliers about current production levels. He travels next month to Saudi Arabia, the biggest U.S. oil supplier and most influential OPEC member.

In a separate move, Richardson announced last Wednesday that he would postpone the delivery of up to five million barrels oil into the reserve, allowing energy firms to sell that crude in the open market.

(Washington Energy Desk, 202-898-8320)

) copyright 2000 Reuters, Ltd.

-- Possible Impact (posim@hotmail.com), January 30, 2000

bold off

-- Possible Impact (posim@hotmail.com), January 30, 2000.

PI

Either I can't remember or I can't add or maybe I just don't understand. I thought it takes four to five weeks to get this crude to market after it is released. Now they are going to wait two weeks before they release any(if any), nowthats makes six to seven weeks. what about those people that need it now???.

Maybe they are saying that we will definiately be out by then or maybe I should just forget it and put my head back in the sand.

What do you think//.

-- Fred M Clem (redball@techcomm.net), January 30, 2000.

---read more about oil this past month than rest of my life put together. Let's see if just a tiny bit has soaked in-I doubt it, but worth a shot-let's see here, past month prices going up and up. Reports from all the oil guys, most of them say their contacts and research say there's something weird going on. We're at the point now where oil is at about an historic high, not counting inflation. So-o-o-o, based on this, a lot of paper future oil has been sold. Now with this story, and the one a few threads below in french, all of a sudden it looks maybe oil will seriously drop in price, and the big producers get this amazing sweetheart deal that they may or may not pay back some time over the rainbow in the future, a la, the S&L deal. This is amazing. where do I sign up for a million barrels? Sur-e-e-e I'll pay it back, heck I'll outbid 'em 4-1, lot better than that paltry 2 for 1!

Ok, the question, where will this leave the medium and small guys who deal in this into march and beyond, those who have committed their money already? Looks to me like they are gonna be left holding the expensive but empty bag, while the really big-big guys clean up, real quick like. Am I close, O great oil gurus?

-- zog (zzoggy@yahoo.com), January 30, 2000.

Sounds like a gamble. If prices don't drop, the gov will have the national oil industry "over a barrel" heh.

-- Hokie (Hokie_@hotmail.com), January 30, 2000.

What you're seeing here is a knee jerk reaction to failed energy policies. The excuse being used is the political hot potato taking place in NY Harbor re:heating oil. THAT problem is a short term logistical nightmare caused by JIT practices and several refinery outages occurring within close proximity to each other. Make no mistake, Bill Richardson is now blindly wandering down a very steep and slippery slope. A misstep here will be fatal for US energy concerns and the US economy. I would advocate an attitude of deference to the saudis at this point, not beligerance and silly SPR plans. This is confirmation that my OPEC consolidation theory is correct.

-- Gordon (g_gecko_69@hotmail.com), January 30, 2000.

I still think its a scam. The whole boody oil industry, the .gov. Everybody. To hell with it. I just wish that the oil would dry up forever.

-- Billy Boy (Rakkasan101st@Aol.com), January 30, 2000.

Sorry, just a little poopy about paying $2 a gallon for heating oil...as Diane would say...
*SIGH*

-- Billy Boy (Rakkasan101st@Aol.com), January 30, 2000.

CRAP !!!! PURE UNADULTERATED CRAP!!!!!

THese idiots are going for the quick warm and fuzzy. They SAY they expect to get oil back into the SPR in the next 12 months. HORSE HOCKEY!!!!

THIS reserve is SUPPOSED to be for STRATEGIC use.

unless of course they KNOW that there is a problem, and we're trying to hide it for acouple more days....

C

-- Chuck, a night driver (rienzoo@en.com), January 30, 2000.

Hey Gordo, Does this sound like the Fed is trying to get into the oil futures game? What happens if they don`t get any takers? Looks like they are trying to defer the oil crisis until after the election.

-- Earl (earl.shuholm@worldnet.att.net), January 30, 2000.

Just another phase of Clinton's betrayal of his oath and of the national interest.

>"<

-- Squirrel Hunter (nuts@upina.cellrelaytower), January 30, 2000.

Chuck,
One more wail to add to the chorus, HOW can they get EXTRA oil to PUT BACK when there is a SHORTFALL of production right NOW? OPEC can keep quotas right at the point of consumption, there would never be an opportunity to catch back up!

-- Possible Impact (posim@hotmail.com), January 30, 2000.

It won't matter if they release the SPR or not. OPEC is still producing essentially the same quantities of oil right now as they were LAST YEAR The problem is that THIS YEAR we can't process those amounts of oil through the refineries.

Any wonder why? But the political ange says they've got to release the SPR so they're going to do it. Even though it'll probably do more good in three or four months when the whole system might be running dry, not just the outlet side of the refineries. They'll do it now for the political mileage and worry about what to do in three or four months time come four or five months from now

WW

-- Wildweasel (vtmldm@epix.net), January 30, 2000.

Right - We will never be able to catch up - Once gone always gone - This remediation sounds very funny - Are we preparing for war in the Middle East if Russia cannot defeat Chechnya?

-- Bob (bmoss3@prodigy.net), January 30, 2000.

I've read that the oil in the SPR is low quality and high in sulfur, and there are problems extracting it from the salt caves it's stored in. Anyway, if the real bottleneck is shut down and malfunctioning refineries, more crude oil won't help. Apparently it's just another attempt to manipulate prices. Is this in the best interest of the U.S.? Idaknow. It's like breaking into your Y2K stockpiles because you're too lazy to go to the store. It saves you money now, too. But you may regret it later. This morning's grits came courtesy of my Y2K preps. It helped because we've been stuck in the house thanks to the ice storm. But you can still buy grits at the store now. If the economy tanks and JIT shipping and ongoing Y2K problems creates shortages, I may wish I had held on to the grits.

Same with the emergency oil.

-- Ceemeister (ceemeister@hotmail.com), January 31, 2000.

The intent of the Strategic Oil Reserve was for the US Gov. to have an emergency supply of oil. For military and civilian government use in case of severe oil shortages. If we use it to reduce prices, then how will the US go to war if it doesn't have any oil in the future? Lowering the price of oil will make people happy, but it's not in the US' best interests to waste the SPR for that!

-- slza (slzattas@erols.com), January 31, 2000.