SPR politics and prices - President Clinton approves use of Strategic Petroleum Reserve - Brief Article - Statistical Data Included

World Oil, Nov, 2000 by Perry A. Fischer

Well, after it was agreed by the presidential candidates that further use of the U.S. Strategic Petroleum Reserve (SPR) to ease supply problems (lower prices?) would not likely be effective, Bill Clinton did just that. The measure was aimed at increasing winter fuel-oil reserves in the Northeast.

The arguments against the release were that it would be temporary and that OPEC could easily nullify the crude-supply increase. In a column in The Bakersfield California, California IPA spokesman Dan Kramer was quoted, saying it was "irresponsible public policy and disastrous energy policy for the U.S. and California." Casper Zublin, a Bakersfield energy consultant, said "no one should be under the illusion that the extra oil will make a meaningful difference over the long haul." Taken together, these statements epitomize the range of political rhetoric: It is both disastrous and will not make a meaningful difference.

Both Republican and Democratic congressmen from the Northeast--where winter fuel-oil inventories are 70% below year-ago levels--support the oil swap. Outside of the Northeast, support splits along party lines. Such is politics.

This plan is similar, in effect, to a futures contract used as a hedge. The 30 million bbl of oil--about 5% of the SPR total--must be paid back within a year with interest--also paid in oil. For buyers, the hope is that oil prices will be lower when payback time comes.

On October 4, 11 companies collectively promised to exchange 31.56 million bbl within a year for 30 million bbl now. The largest takers were BP Oil Supply Co. (6 million bbl) and Lance Stroud Enterprises (4 million bbl). DOE has left open an option that would allow another 45 million bbl to be swapped in the future.

All of this is in addition to an earlier SPR swap of 2.8 million bbl to create a dedicated, 2-million-bbl emergency-heating-oil reserve in the Northeast.