Under pressure, Bush stops adding to US petroleum reserve
But oil prices fail to react, climbing more than $2.50 a barrel Friday.
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Yet other energy analysts questioned whether the government should keep adding to the SPR with prices soaring. "It seems reasonable to halt adding oil when prices are so high," says Tim Considine, who has done a study on the SPR and is a professor at Penn State University. "But I don't think the price of oil is going to drop. It's too small an amount to really matter."Skip to next paragraph
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Even without the congressional action, it was likely that the government was going to have cut back on adding oil to the SPR because it was nearly full. In 2005, Congress authorized increasing the size of the SPR to 1 billion barrels. But that underground storage facility won't be ready for at least eight years, says Jeremy Cusimano, an economist for the Petroleum Reserves, part of the Energy Department, in Washington. In addition, Congress has yet to provide significant funding for the facility, he adds.
Although the Energy Department has contracts to receive oil through the end of June, it will defer those contracts, says Mr. Cusimano. "But ships on the water will not be diverted."
On the day the Energy Department was making its announcement, President Bush met with Saudi leaders to seek an expansion of oil supplies. According to news reports, the Saudis had already increased oil production by 300,000 barrels of oil per day. This will take Saudi production back to early 2006 levels, wrote Jennifer Gordon of Deutsche Bank securities in a memo to clients on Friday.
She noted that much of the additional Saudi production is on its way to the US, including 16 million barrels of crude that was sold earlier and will arrive in the next two weeks. The additional oil, she calculated, could significantly increase inventories and possibly bring down the oil price.
However, Mr. Fitzpatrick wonders if the Saudi move may have the reverse affect. "It may show how little spare capacity they really have," he says.
This week some analysts have increased their estimate for the price of oil. Goldman Sachs estimated oil prices would hit around $140 a barrel later this year. Mr. Fitzpatrick is estimating it will move to $138 a barrel before September.