Oil Reserves to Be Tapped to Aid Hurricane Victims

WASHINGTON – The Bush administration announced Thursday it would provide U.S. refineries with "limited quantities" of crude oil from the nation's emergency stockpile to help offset supply disruptions along the Gulf Coast from Hurricane Ivan.

The move could help ease rising fuel prices and carries political implications less than six weeks from the presidential election.

The oil will be provided with the understanding that a like amount of crude, plus a bonus amount, will be returned to the Strategic Petroleum Reserve (search) "once supply conditions return to normal," the Energy Department said. It said terms of the deal were being negotiated.

While Democrat John Kerry (search) has long urged Bush to use the reserve to ease oil costs, Bush in the past has resisted doing so. Bush criticized President Clinton for tapping into the reserve in 2000, suggesting it was a political gesture to help Democrat Al Gore, Bush's opponent in that year's election.

The oil would be in the form of a loan, or swap.

"I have authorized these negotiations in response to the physical destruction of offshore oil production and imports in the Gulf region caused by Hurricane Ivan's destruction," Energy Secretary Spencer Abraham (search) said in a statement.

Administration officials said that several U.S. refiners had asked to borrow crude oil from the reserve, but did not say which ones or how much they sought.

Created in the 1970s after the Mideast oil embargo, the reserve now holds roughly 670 million barrels of crude oil in underground caverns in Texas and Louisiana - close to its capacity of about 700 million barrels. There are 42 gallons in each barrel.

White House spokesman Scott McClellan earlier told a White House briefing, "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. "

And Hurricane Ivan (search), which shut down oil refineries in the Gulf Coast and kept tankers from port, qualifies as such a physical disruption, McClellan suggested.

"It has limited some refiners' access to crude oil supplies," McClellan said. He said it was important "to make sure that our system continues to operate until production and imports resume."

Meanwhile, Ivan, reconstituted as a tropical storm, on Thursday was again threatening the Gulf Coast, headed toward Texas and Louisiana.

Kerry spokesman Phil Singer noted that Kerry had been calling on Bush "to use the SPR to ease oil costs for months," and last March had urged the administration to "stop filling the SPR while record high prices and supply crunches squeezed American families."

Singer accused Bush of acting only when "a few oil refineries weigh in ... and just a few weeks before the election." Democrats have accused Bush and Vice President Dick Cheney, both former oil-industry executives in Texas, of being overly cozy with the industry.

Administration officials shrugged off such accusations and said there was a precedent for the loans: the Bush administration's approval of such loans of oil in October 2002 when Hurricane Lili disrupted Gulf Coast shipments.

Then, the Energy Department loaned refiners 300,000 barrels.

Senate Democratic leader Tom Daschle of South Dakota welcomed the move but suggested Bush should have used his authority months ago to tap into the reserve. He said high gas prices hit rural areas like his state particularly hard "where people often have no choice but to drive long distances."

The drop in supplies from the Gulf - which accounts for a third of domestic oil production - helped push up oil prices. Temporary loans of oil could help ease crude oil prices.

However, oil prices climbed toward $49 per barrel Thursday despite advance word that the administration was considering the assistance.

Analysts said the impact would ultimately depend on the amount of oil made available, though they expected the size of any loans - and the effect on prices - to be small.

Light crude for November delivery rose 30 cents to $48.65 per barrel in afternoon trading on the New York Mercantile Exchange, retreating from an intraday high of $49.

Fadel Gheit, senior oil and gas analyst at Oppenheimer & Co., said lending the oil is "too little, too late" and blamed the Bush administration for contributing to soaring prices with its policy of continuing to fill the stockpile.

The action drew approval from Sen. Charles Schumer, D-N.Y., a proponent of using oil from the reserve. "This is the first crack in the armor," Schumer said. "They should realize this is the best way to bring down fuel costs in short term."