Gov't. resumes oil purchases for stockpile

[January 05, 2009]  WASHINGTON (AP) -- Taking advantage of low oil prices, the government is resuming purchases of crude oil for its emergency stockpile.

The Energy Department said Friday it will seek contracts and make other arrangements for the delivery of nearly 20 million barrels of oil to the government's Strategic Petroleum Reserve in the coming months. The reserve, a system of caverns on the Louisiana-Texas coast currently holds 702 million barrels of crude.

The department said it will buy 12 million barrels to replace the oil that was sold from the reserve in 2005 to meet shortages after Hurricane Katrina disrupted oil production in the Gulf of Mexico. Another 2.18 million barrels will be bought to make up for oil that didn't go into the reserve last year after Congress banned purchases because of high prices and tight supplies. The ban expired at the end of the year.

The government also is calling for the return of about 5.5 million barrels of oil that was loaned to refiners last year after hurricanes Gustav and Ike disrupted supplies.

These actions, along with purchases previously planned for 2009 of about 25,000 barrels a day will bring the government reserve to its storage capacity of 727 million barrels by the end of the 2009, the department said in a statement. That's equal to about 70 days of oil imports.

"DOE plans to take advantage of the recent sharp decline in crude oil prices to enter the market," said the department. It said it will use the $600 million received for the oil in 2005 to replace that oil and buy additional oil.

In the aftermath of Hurricane Katrina in September, 2005, oil cost from $62 to $67 a barrel on the spot market. Crude oil sold for a little over $46 a barrel Friday on the New York Mercantile Exchange for February delivery.

The department solicitation for replacing the 12 million barrels is for February, March and April deliveries.

The other oil shipments will come from the Interior Department's so-called "royalty-in-kind" program where the government collects quantities of crude oil, instead of collecting cash royalties, from oil pumped on federal land and waters.

The Bush administration suspended oil deliveries into the government reserve last May, only days after Congress passed legislation ordering a temporary halt in shipments. Many lawmakers hoped the action might lower gasoline prices by allowing a little more oil onto the market.

Most energy experts said at the time the shipments to the SPR had little impact on global oil supplies fuel prices since the amount going to the reserve was relatively small. The United States used nearly 20 million barrels of oil a day last year.

In fact, gasoline prices soared to more than $4 a barrel in the months after the SPR shipments were suspended as global oil prices peaked at $147 a barrel in July. Both have since dropped dramatically because of the global economic downturn and a sharp drop in overall demand.

The reserve was created in 1975 in the aftermath of the Arab oil embargo to provide a cushion against severe supply disruptions. Congress has authorized expansion to a capacity of 1 billion barrels.

[Associated Press; By H. JOSEF HEBERT]

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