After displaying an initial reluctance,
approved the release Friday of 30 million barrels of oil over the next 30 days from the country's
Strategic Petroleum Reserve
in an attempt to rein in runaway oil prices.
Vice President Al Gore
, the Democratic candidate for president, had recommended Thursday that the president tap into the oil reserves -- a measure not taken since the Persian Gulf war -- in order to keep heating oil prices from climbing even higher this winter. Oil prices have fallen more than $2 in the two days since Gore made the suggestion in a speech Thursday at a Maryland heating-oil refinery.
Crude oil for November delivery dropped $1.32 to settle at $32.68 a barrel on Friday on the
New York Mercantile Exchange
. The October futures contract for crude oil set a new 10-year high of $37.80 a barrel on Wednesday, the day that contract expired, but oil prices eased Thursday following Gore's comments
Heating oil prices have also fallen, with the November contract settling down 4 cents on Friday, at 95.65 cents a gallon.
In an announcement that came after the futures market closed Friday, Energy Secretary Bill Richardson said the release of the additional oil from the country's reserves should increase heating oil supplies by 3 million to 5 million additional barrels this winter, in an effort to cut costs for consumers.
Richardson said that while oil production levels are actually higher than a year ago, strong demand has siphoned off some of the supplies, leaving domestic stocks of distillates -- which include heating oil and diesel fuel -- drastically lower. Distillate stocks are 19% lower nationwide than they were a year ago, but 65% lower in New England -- where residents are most dependent on heating oil.
"Increased world demand has sent oil prices skyrocketing," Richardson added.
Crude oil has been trading at its highest level since the Persian Gulf war, while inventories of crude, distillates, and gasoline are dangerously low, according to industry analysts. The
had estimated that tight supplies may push home-heating oil prices as much as 40% higher this winter than they were a year ago, depending on how much the temperature drops over the next few months.
But analysts are divided on whether tapping into the domestic reserves is the solution. And the
American Petroleum Institute
, which represents the oil industry, called the release "a major and substantial policy mistake."
Phil Flynn, an analyst at Chicago-based
, said the action sounds like "a desperate maneuver" to lower oil prices before the presidential election.
"This would essentially be putting enough oil on the market to psychologically lower prices in the short term," Flynn said. "But if we keep threatening to tap the reserves, it diminishes its impact. The only time we've tapped the reserve there was a war on."
Richardson, however, said the move was aimed at maintaining adequate supplies of heating oil this winter, not promoting Gore's presidential candidacy. "This is not political," he said.
Christopher Stavros, a
oil analyst, said that the White House's choice to release 30 million barrels from the reserves, about 5% of the total reserves, could push prices down to the mid $20s a barrel.
"That's significant," he said. "That will have an impact."
Oil prices had been setting new 10-year
highs on a near-daily basis for the past few weeks.
Crude oil fell slightly after the
Organization of Petroleum Exporting Countries
announced its agreement last week to raise its output target to 26.2 million barrels a day. But prices surged in the following days as analysts and industry groups estimated that the actual increase is not likely to be anywhere near its goal of 800,000 more barrels a day since many OPEC members are already producing at or above capacity.
"All the OPEC increase will do is to help cap prices," Stavros said. "Then we still run the risk of oil being supported by very cold weather or something political happening with Iraq that could take prices much higher than forecast."
Tensions have been growing between OPEC members Iraq and Kuwait. Iraq is accusing neighboring Kuwait of stealing oil, the same allegation it made in 1990 before invading Kuwait. The conflict has also raised concerns that Iraq could use the current crisis as an excuse to cut its oil production
OPEC's president, Ali Rodriguez, has been reported as saying that the organization may consider revising the output agreement if prices remain high, but analysts question whether some of OPEC's members are even capable of meeting the Oct. 1 output level increase. Analysts' forecasts range from an actual net increase of just 100,000 additional barrels to about 300,000 more barrels a day -- far less than OPEC's production quota increase would indicate.
Only Kuwait, the United Arab Emirates and Saudi Arabia, the world's largest oil exporter, are believed to have enough capacity for substantial production increases. And
, a London-based financial services firm, said the oil output for these three countries in August was already higher than the newly approved production ceilings.