Rising US oil prices blamed on reserves policy
By Carola Hoyos in London
Published: February 15 2004 20:53 | Last Updated: February 15 2004 20:53
Two US senators have accused the Bush administration of driving up already high oil prices by its policy of filling up the country's strategic oil reserves.
Carl Levin, a Democrat from Michigan, and Susan Collins, a Republican from Maine, wrote a letter at the weekend urging Spencer Abraham, the energy secretary, to suspend plans to fill up the Strategic Petroleum Reserve (SPR) to "help provide American consumers and businesses with urgently needed relief from near-record high crude oil and energy prices".
With oil prices in the mid $30-range and commercial stockpiles at record lows, high petrol prices this summer could become a factor in President George W. Bush's re-election.
The two senators argue that filling the SPR at such high oil prices costs taxpayers "hundreds of millions of dollars" and that, according to the Air Transport Association, it adds up to $6 a barrel, or nearly 20 per cent, to the US oil price. The letter also quotes the economist Philip Verleger as estimating the extra cost at $8.
Other economists are less certain that the policy is having such a strong affect on oil prices.
Nevertheless, Adam Sieminski, analyst at Deutsche Bank, points out that filling the SPR reduces the amount of barrels in the market and contributes to the reluctance of commercial buyers to fill their inventories.
The administration argues that filling its emergency reserves by 2005 is a security measure to avoid shortages. But it is a policy that pits it directly against the Organisation of Petroleum Exporting Countries - in particular Saudi Arabia, its largest and most influential member.
Opec last week pledged to reduce its output by as much as 10 per cent because of the expected drop in demand as the northern hemisphere's winter subsides. The cartel's move was also intended to keep commercial inventories as low as possible to maximise its control of the market. Ali Naimi, Saudi Arabia's energy minister, argued that Opec had proven it was a reliable source of oil and that it, not consuming countries, should harbour inventories.
He said in an interview with the Middle East Economic Survey: "This hype about building strategic reserves threatens the price in one form or another. Every time the owners of strategic reserves start talking about using it for regulating price, that is a concern to us. So we are concerned about the building of these reserves."
After Opec's decision, Mr Abraham said: "The US is not going to go around the world begging for oil."
William Ramsay, deputy executive director of the International Energy Agency, the developed countries' energy watchdog, agrees: "We don't think the market can be managed from the Gulf."
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