White House consults experts as it mulls tapping oil reserve

  • World
  • Friday, 07 Sep 2012

WASHINGTON (Reuters) - Obama administration officials met with a handful of oil market experts on Thursday as the White House considers the merits of another release of emergency oil reserves - potentially one much larger than the last.

The meeting, originally scheduled for August but delayed by summer vacations, did not centre entirely on the Strategic Petroleum Reserve (SPR), according to non-government sources who attended the meeting.

Government officials did not reveal any plans they may be making to tap the SPR, but they did voice concern about tightening U.S. fuel supply and sounded out the experts on how energy prices could behave in the coming few months under different scenarios, sources said.

The meeting was still read by some as a sign that President Barack Obama is intent on pressing ahead with an unprecedented second tapping of U.S. government oil supplies.

UK-based oil consultancy Petroleum Policy Intelligence issued a report this week saying that an injection of SPR supplies could occur "within days," but two people who attended the meeting said it would not happen that soon.

"They are still in information-collection mode," said one.

But with benchmark Brent oil futures pushing back above $110 a barrel and threatening to restrain the economies of the United States and Western Europe, it has been clear for weeks that the White House is looking to the SPR for relief.

Reuters first reported last month that the administration was "dusting off" plans that had been shelved in the spring, when prices fell. At that time a source familiar with the talks said officials would be looking closely at whether gasoline prices fell after Labor Day, which was on Monday.

For the moment they remain stubbornly high, after last week's Hurricane Isaac shut down a swath of Gulf Coast refineries and a deadly blast in Venezuela temporarily crippled production in part of the world's second-biggest refinery.

White House officials last held a meeting with outside energy experts in July to discuss the overall energy market issues including China's thirst for oil. Thursday's meeting, which included mid-level officials from the National Security Council, the Treasury and the Department of Defence, was about gathering information and was not expected to result in any immediate decisions.

The White House had no immediate comment on Thursday's meeting.

GO BIG OR ...?

While sources say a wide range of ideas on how to tackle oil prices are on the table, one proposal that has been put forward to the administration is to open the door to a much larger, more prolonged release -- perhaps 100 million to 180 million barrels.

Last year, as civil war in Libya cut the country's oil exports, the Obama administration coordinated with the International Energy Agency to sell 60 million barrels of oil, a move that lowered oil prices but only for a few weeks.

It is unclear whether Washington can again marshal global backing for a measure. It has secured support from the UK and France, media have reported, but officials in Germany, Italy and Japan say they oppose another release.

A much more dramatic measure could put a bigger dent in oil prices, easing gasoline costs just before the U.S. presidential election on November 6 but also likely sparking fierce attacks from Republicans who have long resisted using the SPR for anything other than a supply emergency, like Hurricane Katrina.

Republicans could also be expected to accuse Obama of attempting to use the SPR for his own political benefit as he tries to convince voters weary of high unemployment and a weak economy to give him a second term.

Domestic considerations aside, the administration is nervous about the potential impact on oil markets and the economy in the event that Israel attacks Iran, whether it comes before the November 6 election or in the months after, said another energy expert by cell phone before he entered Thursday's meeting.

Officials also fear that high prices are blunting the impact of new sanctions on Iran, designed to cut funding of the country's nuclear program, which Tehran says is purely for civilian purposes.


Using the SPR to aid policy has been a topic of discussion with energy experts going back at least to the administration of George W. Bush.

It was unclear just how seriously White House officials were considering such a large sale, which would likely last months. While angering Republicans, such a measure could also rile Saudi Arabia, which has been pumping at the highest rates in years to replace barrels lost by Western sanctions on Iran.

However some say the idea may have merit. U.S. net oil imports have fallen this year to below 8 million barrels a day, down more than a third from 2005, thanks to an unexpected boom in domestic production - meaning Washington no longer needs to hold quite as much oil in emergency reserve.

The stockpile currently holds about 696 million barrels, which in theory could be reduced to 500 million barrels in the coming years, according to energy consultant Philip Verleger, who was an energy advisor to former President Jimmy Carter.

"What's clear right now is there's a shortage of gasoline and that oil product markets are tight," said Verleger, who was not attending Thursday's meeting.

Verleger said that tapping SPR crude reserves now would do little to solve a problem of falling U.S. gasoline supplies, which last week dipped below 200 million barrels, or around 10 million barrels lower than the same week of 2011.

U.S. refineries might not quickly ramp up making gasoline even if more crude were offered from the SPR, he said.

Other ideas beyond tapping reserves would also likely be discussed, one expert who attended the meeting said before the talks.

One would be to give drivers a holiday from the federal fuel taxes, which could push gasoline dramatically lower for a while. In 2008 Senator John McCain, who was then running against Barack Obama for the presidency, suggested a suspension of the federal gasoline tax for the summer months, but the idea faded.

(Additional reporting by Patrick Rucker and Matt Spetalnick in Washington and Joshua Schneyer in New York; Editing by Jim Marshall and Lisa Shumaker)

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