LONDON – Oil prices inched closer to $50 a barrel Thursday even as the Bush administration offered to tap the nation's emergency stockpile of crude on behalf of refiners whose supply was disrupted by Hurricane Ivan.
It would be the first time the government loaned oil from the Strategic Petroleum Reserve (search) in almost two years.
While analysts said the impact on red-hot energy markets would ultimately depend on the amount of oil made available, they expected the size of any loans — and the effect on prices — to be small.
"If there is any oil loaned from the reserve it will be minimal and certainly not enough ... to make up for oil production that continues to be lost on a daily basis or to kill the momentum of the current rally," said John Kilduff, senior oil analyst at Fimat USA in New York.
The government did not say which refiners made the requests or how much oil they sought to borrow. An Energy Department spokeswoman said the agency would negotiate with the companies to make "a limited quantity" available.
Light crude for November delivery rose 11 cents to $48.46 per barrel on the New York Mercantile Exchange (search), retreating from an intraday high of $49. That was 24 cents below the Aug. 19 peak Nymex settlement price. Adjusting for inflation, today's prices are still about $8 below the level reached just before the first Gulf War.
The possibility of the government loaning oil to refiners comes as oil production in the Gulf of Mexico continues to lag by 27 percent below normal at 1.2 million barrels per day, according to the federal Minerals Management Service. The agency said 9.6 million barrels of oil have been lost since last Monday, when offshore producers began evacuating crews.
U.S. oil supplies typically grow this time of year as gasoline demand tapers off and refiners briefly shut down to perform maintenance. But with additional 1.5 million barrels per day of supply lost last week due to shipping delays, refiners have had to use oil held in storage in order to produce gasoline, heating oil and other fuels.
While the Bush administration sought to help refiners, energy analysts and traders said any assistance would not undo the broader market trends that have kept prices high all year.
Fadel Gheit, senior vice president of oil and gas research at Oppenheimer & Co. in New York, said lending oil from the SPR to refiners is "too little, too late."
Gheit also blamed President Bush for contributing to today's soaring prices through its policy of augmenting the country's emergency stockpile at a time when global demand and prices are high.
"He scared China and India and Korea and everybody else that we were anticipating supply shortages," Gheit said, leading them to buy more oil than they needed and artificially inflating global demand. "When somebody spots the mayor loading up on bottled water in the supermarket, guess what they're going to do?"
In the past, President Bush has resisted calls to tap into the SPR, located in Texas and Louisiana, in an effort to counter soaring prices. Instead, the White House has said that filling the reserve to its maximum 700 million barrels is a matter of national security and should not be interrupted.
Bush had criticized President Clinton's move in fall 2000 to tap the reserve, saying it was a political effort to help Democrat Al Gore, Bush's opponent in the 2000 election. Nevertheless, the Energy Department (search) loaned roughly 300,000 barrels of crude to Shell Oil in Oct. 2002 after Hurricane Lily.
"We've always said the Strategic Petroleum Reserve was set up to protect against physical disruptions of oil supplies such as national emergencies or natural disasters, and not to manipulate prices or for political purposes," White House spokesman Scott McClellan said.
McClellan's said it was important "to make sure that our system continues to operate until production and imports resume."
John Kingston, director of oil at Platts, a division of McGraw-Hill Cos., predicted that the government would "help out a couple of refiners" but that this would not be a "big deal" as far as global oil markets go.
On Wednesday, the Energy Department reported that the nation's supply of crude fell by 9.1 million barrels last week due to Ivan-related disruptions to oil production and shipping, bringing inventories to 269.5 million barrels, or 5 percent below last year.
While the domestic supply troubles caused by Hurricane Ivan are expected to dissipate, analysts said the underlying tightness in global oil markets is not.
The amount of excess oil production available worldwide is about 1 percent of total demand of about 82 million barrels a day, leaving the industry little breathing room in the event of a prolonged supply interruption, according to many analysts.
As a result, potential output problems in Iraq, Russia and other key oil-producing nations have kept oil traders jittery and prices high.
In other Nymex trading, October heating oil futures rose 0.85 cent to $1.3529 per gallon, while gasoline futures slipped 0.10 cent to $1.3420 per gallon. Natural gas for October delivery fell 6.5 cents to $5.564 per 1,000 cubic feet.