This should hopefully help....
http://www.nytimes.com/2005/08/31/na...gewanted=print
--------------------------------------------------------------------------------
The New York Times
August 31, 2005
U.S. Decision to Release Oil Sends Prices Below $70
By VIKAS BAJAJ
The Energy Department said this morning that it would release oil from the nation's Strategic Petroleum Reserve to keep refineries supplied, prompting a drop in crude oil prices, the first decrease since Hurricane Katrina slammed ashore on Monday and severely disrupted the energy infrastructure along the gulf.
Energy secretary, Samuel Bodman, said the decision to release the crude oil was made Tuesday night after an oil refiner asked to borrow from the 700-million barrel reserve. The government did not disclose the name of the company that made the request or say how much oil it would release.
The price for crude oil for October delivery on the New York Mercantile Exchange was down 41 cents a barrel, to $69.40.
"The department continues to review other requests as they come in," Mr. Bodman said in a statement. "This administration has been clear that SPR is a national asset that can be used in times of supply disruption, like a natural disaster."
The announcement came as President Bush returned to Washington today, two days ahead of schedule, to manage the Federal response to the storm, amid expectations that he would try to visit the devastated regions in the next few days.
The hurricane has shut down the vast majority of oil and natural gas production in the gulf and severely hampered refineries all along the coast. Energy analysts and local officials have said flooding and the lack of power will make it difficult for the industry to resume regular operations for a week to 10 days at the very least.
Energy analysts said that while releasing oil from the reserve would help, it may do little to increase the supply of gasoline in the short run because it would take refiners at least another week and some even longer to start processing crude oil again. The government has said at least nine refineries in the gulf coast have been completely shut down and several others have reduced their production.
"All of the crude in the world does not turn the crude into product, it still has to be refined," said Thomas Bentz, an energy analyst at BNP Paribas in New York. "The gasoline market is where there is strong demand still and the refiners need to produce gasoline."
Wholesale gasoline prices, which climbed for the third straight day, were up 17.55 cents a gallon, to $2.650. Since the hurricane came ashore, prices have risen more than 37.5 percent. The national retail average gasoline price was $2.619 a gallon today, up from $2.604 on Tuesday and $2.284 a month ago, according to the American Automobile Association.
The increase in gas prices comes less than a week before the three-day Labor Day weekend when many Americans take their last summer road trips and vacations before the end of the summer.
Highlighting the challenges refiners face, Valero Energy said Tuesday evening that a small crew was working to bail water out of its St. Charles refinery about 25 miles west of downtown New Orleans. The facility still does not have power and the company has not been able to get employees to the site, because officials are discouraging people from returning to hurricane-affected areas. Before the refinery shut down, it processed 185,000 barrels of oil a day.
The lack of power could also hamper or delay the release of oil from the oil reserve. Speaking on CNN, Mr. Bodman said there were two major pipelines that can deliver oil to the refiners, but that both still lacked power. "We are now working with both companies," he said, "to get these lines up and functioning."
Releasing oil from the reserve is a "good first step," because it tells investors and the market that the government is available to help ease energy constraints, said Lawrence Goldstein, president of the Petroleum Industry Research Foundation. "It's probably more psychological than physical but it's an important step. It breaks down the mindset that you are on your own."
Until today, the Bush administration has been reluctant to use the reserve, lest it appear to be acting politically. The last time officials released oil was after Hurricane Ivan destroyed underwater oil and gas pipelines and other infrastructure last year, but they have resisted calls from Democrats and others to release oil to bring down prices.
"Bodman redefined for the administration, at least for this time and maybe it's a unique situation, that this is exactly why we have the reserve," Mr. Goldstein said.
A loan from the petroleum reserve must start as a request from an energy company to the government. Companies agree to replace all the oil they take from the reserve at a later date.
Mr. Goldstein said consumers were not likely to feel a benefit from the release right away, because demand for gasoline was so strong and refining capacity was already stretched. Also, pipelines that bring refined gasoline from the Gulf Coast area to the Northeast are not operating because powerfailures.
"There is going to be pain long after because we were already short," he said. "This pushed a very, very tight situation over the line. While we can ameliorate pain, we cannot eliminate it."
Linear Mode
