Bloomberg News

Obama Urged to Resist Calls to Use Oil Reserves Amid Iran Risks

February 27, 2012

Feb. 23 (Bloomberg) -- President Barack Obama should resist calls to combat rising gas prices with oil from U.S. reserves, which must be available in the event Iran blocks a pathway for a fifth of the crude heading to market, Republicans say.

Gasoline prices that have climbed every day for two weeks and a nine-month high for oil spurred Democratic Representatives Ed Markey of Massachusetts, Peter Welch of Vermont and Rosa DeLauro of Connecticut, to ask Obama yesterday to use the stockpiles. Republicans opposed the request, citing tensions with Iran over its nuclear-weapons program and possible retaliation that would interrupt crude shipments.

“The Strategic Petroleum Reserve is there for times of emergency and supply disruptions,” Senator Lisa Murkowski of Alaska, senior Republican on the Energy and Natural Resources Committee, said yesterday. “It is imperative” the stockpile be available for “a serious supply disruption down the road.”

Gasoline prices at the pump have climbed 41 cents, or 13 percent, in the past 12 months, causing American families to spend about $27 a month more to fill their tanks, according to the American Petroleum Institute, the largest energy-industry trade group.

The U.S. reserve holding 696 million barrels of oil, the world’s largest government-owned stockpile, was sued in July and August last year, under an International Energy Agency effort to ease shortages of Middle East supply.

Refineries, Prices

“A release of crude oil from the SPR may cause a temporary decline in the price,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in an interview. “However the markets’ concern with Iran, Sudan and Nigeria, as well as the closing of seven refineries in the Northern hemisphere over the last six months has taken precedence and boosted prices.”

Oil for April delivery rose 3 cents to settle at $106.28 a barrel on the New York Mercantile Exchange yesterday as officials from the International Atomic Energy Agency were denied access to an Iranian military base and said negotiations “couldn’t finalize a way forward.” It was the highest settlement price since May 4.

Israel and the U.S. have said all options are on the table in ensuring the Persian Gulf nation doesn’t acquire atomic weapons. Iran says its nuclear program is for energy.

Speculation that supplies will be disrupted has increased as tension between Iran and Western nations escalates, David Greely, head of energy research at Goldman Sachs Group Inc. in New York, said in a report yesterday.

Market Fears

“This most-recent run-up in prices is primarily the result of fear driving oil markets,” Markey, Welch and DeLauro wrote to Obama. “We urge you to consider again deploying oil” in the reserve “to combat the rapid price escalations resulting from speculation.”

House Republicans criticized the call.

“This is a time-honored ruse used by Washington Democrats who oppose more American-made energy every time gas prices rise,” said Michael Steel, spokesman for House Speaker John Boehner. “The SPR is for severe supply disruptions, for example, if Iran blocks the Straits of Hormuz.”

At the White House, press secretary Jay Carney said he hadn’t seen the Democrats’ letter and had no comment on the possibility of using the reserve or whether administration officials had considered a price that would trigger a release. “We take no possible response off the table,” he said.

‘Real Supply Emergency’

The American Petroleum Institute said releasing oil in the reserve might push prices lower only for a short time.

“It drains reserves that could be needed in a real supply emergency,” John Felmy, chief economist of the Washington-based group, said on a conference call.

The group, which represents more than 490 companies, including Irving, Texas-based Exxon Mobil Corp. and London-based BP Plc, urged drivers to remove junk from their trucks and tune engines to reduce fuel use.

Senator Jeff Bingaman, a New Mexico Democrat and chairman of Senate Energy and Natural Resources Committee, said the U.S. needs to keep the reserve well-stocked and use it in case of supply disruptions.

The U.S. has withdrawn oil 18 times since 1985, including in 2008 after hurricanes Gustav and Ike struck the Gulf Coast.

“Speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery,” House Democratic leader Nancy Pelosi of California said in a statement yesterday. “Wall Street profiteering, not oil shortages, is the cause of the price spike. In fact, U.S. oil production is at its highest level since 2003.”

U.S. oil output is the highest in eight years, and Obama said he plans to offer additional oil leases in the Gulf of Mexico in June. The administration also approved Royal Dutch Shell Plc oil-spill response plan in the Chukchi Sea on Feb. 17, bringing the Hague-based company closer to drilling off the north coast of Alaska after five years of preparation.

--With assistance from Kate Andersen Brower and Brian Faler in Washington, Aaron Clark in New York. Editors: Steve Geimann, Andrea Snyder

To contact the reporter on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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