Obama Taps Petroleum Reserve

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In a surprise move, the Obama administration said it would tap the strategic petroleum reserve to offset the crude supply lost to the civil war in Libya. The coordinated plan with the International Energy Agency will release 60 million barrels from emergency supplies around the world. Oil prices plummeted on the news, and shares of energy company stocks tumbled as well.

ROBERT SIEGEL, host:

From NPR News, it's ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

Oil prices dropped sharply today. That's after the U.S. and other countries announced they will tap their petroleum reserves to increase supply on the world market. The International Energy Agency says its member countries will release 60 million barrels over the next month. Half of that will come from the U.S.

NPR's Jeff Brady says this is good news for those planning a summer driving trip.

JEFF BRADY: Gasoline prices across the U.S. will almost certainly head down in coming weeks because of this announcement. Patrick DeHaan is a petroleum analyst with GasBuddy.com.

Mr. PATRICK DEHAAN (Senior Petroleum Analyst, GasBuddy.com): You know, better late than never. But I think this would have helped a bit more had it been in May, it would have helped the overall energy markets.

BRADY: As it happens, gas prices this week already were down 30 cents from their nearly $4 a gallon peak last month. Still, that's almost a dollar higher than a year ago.

Energy Secretary Steven Chu said in a statement, the extra oil will make up for supply disruptions because of turmoil in the Middle East. As summer gets under way, the administration worries increase in demand could push prices back up.

At the U.S. chamber's Energy Institute, President and CEO Karen Harbert blasted today's announcement, saying the Strategic Petroleum Reserve was intended for emergencies.

Ms. KAREN HARBERT (President/CEO, U.S. Chamber of Commerce Energy Institute): The closing of a canal, Hurricane Katrina, which shut down the Gulf of Mexico -something of that proportion. It was never intended to be a short-term price fixer.

BRADY: As oil prices dropped today, oil company stocks also took a nosedive. Exxon Mobil's share price was down nearly three percent. That might not sound like much but for a company as big as Exxon that's about $10 billion in share volume lost in one day.

As you might expect, the oil industry was not pleased to hear the administration is tapping the Strategic Petroleum Reserve.

Dr. JOHN FELMY (Chief Economist, American Petroleum Institute): This is a move based on the failed energy policy.

BRADY: John Felmy is the chief economist at the American Petroleum Institute. His industry has been saying for a long time that the U.S. government should open up the country's shores and wild lands to more drilling. Felmy says over the long-term, more domestic supply would help calm erratic oil markets.

Dr. FELMY: We can produce a lot of supply in this country that would be far in excess of what they're talking about with this release. And it would generate jobs, revenue for the federal government, and improve our energy security.

BRADY: The administration's concern over oil supply is due to the trouble in Libya. Fighting there took about one and a half million barrels of oil a day off the world market. Saudi Arabia has tried to make up for that, but there's a problem.

Professor PHILIP VERLEGER (Economics, University of Calgary): The extra oil the Saudi's produce is a heavier oil that has a high sulfur content.

BRADY: Philip Verleger, at the University of Calgary, says it's difficult for a lot of European and U.S. refineries to produce gasoline and diesel from Saudi oil.

Prof. VERLEGER: All crudes are not the same. They're, you know, they are like red jellybeans and black jellybeans. The Saudis have lots of black jellybeans, but what we need are the red jellybeans and that's what Libya produces.

BRADY: As it happens, the U.S. has a lot of red jellybeans. The Department of Energy says there's plenty of light, sweet crude in the nation's Strategic Petroleum Reserve. The 30 million barrels being released over the next month accounts for less than five percent of the total reserve. And a senior administration official told reporters today that if supply problems persist, the White House could tap the reserve again this summer.

Jeff Brady, NPR News.

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