U.S., Learning From History, Makes Oil Available

President George W. Bush's response to Hurricane Katrina suggested that Hurricane Ivan taught him a lesson about making supplies from the U.S. Strategic Petroleum Reserve available for refineries. As Katrina swept through the Gulf of Mexico and into the South two days ago, the White House said oil from the reserve is available for companies that need it. About 95 percent of the oil normally drilled in the Gulf was cut off by the storm. Last September, when Ivan thrashed the Gulf Coast and halted most oil production in the region, Bush took 11 days to tap the reserve. Oil surged 11 percent between Ivan's arrival and the president's decision. ``Politically and economically they learned from Ivan,'' said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York. ``They learned the market doesn't wait for anybody'' and the loss of supply ``makes the economy vulnerable,'' he said. This week, prices climbed 5.6 percent during the first two days and reached a record $70.85 a barrel yesterday on the New York Mercantile Exchange. Prices retreated today after Energy Secretary Samuel Bodman said he approved a company's request for oil last night. The futures contract covering October delivery was down 21 cents at $69.60 as of 8:22 a.m. The Louisiana Offshore Oil Port, the largest U.S. oil-import terminal, has been shut since the storm headed toward Louisiana. The port handles about 1 million barrels of oil a day, or 11 percent of U.S. imports. About 95 percent of the Gulf region's oil production, about 1.4 million barrels a day, is still shuttered as oil companies assess damage from one of the strongest hurricanes on record. Bodman Talks The reserve, located in salt caverns along the Texas and Louisiana coast, holds 700 million barrels of oil. The amount is more than twice the 323 million barrels that refiners had in the week ended Aug. 24, Energy Department figures showed. Bodman said two days ago in a statement that he began talking with companies in the storm's path last week and was assessing Katrina's impact. White House spokesman Scott McClellan said the reserve is there for emergencies, including natural disasters. ``There was some forward leaning this time just to make sure that we were on our game,'' an Energy Department spokesman, Craig Stevens, said yesterday in Washington. Ivan began disrupting production and shipments in the Gulf around Sept. 13, 2004. The administration approved the first of five oil loans on Sept. 24. Bush, as a candidate for president in 2000, criticized President Bill Clinton's decision to release 30 million barrels from the reserve two months before the election. `Political Decision' Last August, Vice President Dick Cheney said the reserve should be used only for a ``dire emergency,'' such as the loss of 5 million to 6 million barrels a day of imports. That would be about a quarter of U.S. demand or almost two-thirds of Saudi Arabia's output. ``Ideological resistance'' has given way to a realization that ``the administration has erred in not providing relief to U.S. refiners when there are real supply losses,'' said David Goldwyn, president of Goldwyn International Strategies in Washington. After Ivan hit, Bush debated whether tapping the reserve ``would look like it was a political decision when they had been so critical of Clinton releasing oil before an election,'' said Goldwyn, a former assistant U.S. energy secretary and co-editor of a book entitled ``Energy and Security: Toward a New Foreign Policy Strategy. ``Now they're not having that debate.'' Gasoline prices are also affecting the administration's response, he said. U.S. retail gasoline is 40 percent more expensive than a year ago, according to the Energy Department. Refinery Shutdowns At least eight U.S. oil refineries are closed because of Katrina, shutting in 1.79 million barrels of daily capacity. Some, including Valero Energy Corp.'s St. Charles, Louisiana, refinery, may take two weeks to return to service. Others are still assessing damage. Exxon Mobil Corp.'s Baton Rouge refinery is operating at reduced rates because of a lack of adequate crude supplies. It's too early to decide whether oil from the reserve should be tapped, said Adam Sieminski, global oil strategist at Deutsche Bank AG in New York. Refineries have 11 percent more crude on hand than a year ago, according to Energy Department figures. ``It's not going to be of much help unless we get refineries running again,'' Sieminski said. ``Releasing oil from the SPR right now would be actually inappropriate because there would be no place to put it.'' Calming the Markets Administration statements about the reserve this week helped to ``calm down'' oil markets, Sieminski said. Yesterday, traders weighed the possibility that it might take longer than expected to restart production in the Gulf, he said. It may take weeks for companies such as Royal Dutch Shell Plc, the biggest deepwater producer in the region, Exxon Mobil, Chevron Corp. and BP Plc to fully assess the damage to offshore production platforms caused by the hurricane. Until the companies establish timetables for restoring this output, the government's willingness to make crude available from the reserve may serve to ease shortage concerns. ``Whether it makes a physical difference or not is irrelevant,'' Goldstein said. Government statements about the national stockpile had ``a very important psychological impact because they came out early.''