The United States is suspending shipments to its strategic oil reserve for the second half of the year after Congress passed a bill calling for the halt, according to the U.S. Energy Department.
As oil prices hit new highs over $127 a barrel, the Energy Department says it has not signed a six-month contract for deliveries to the U.S. Strategic Petroleum Reserve (SPR), the world's largest stockpile of government-owned emergency crude oil. The decision affects the receipt and transportation of up to 13 million barrels of crude oil.
Energy Department spokeswoman Megan Burnett says that the U.S. fills its reserve by about 70,000 barrels per day, an amount that "doesn't have an appreciable action on prices." She says the 70,000 barrels of crude represents less than one-tenth of one percent of global daily consumption.
The oil market has shrugged off the announcement. "It may be bearish for prices, particularly if it stops injecting the SPR, but the market has enough to move forward, despite the move in terms of the SPR," says Eric Wittenauer, analyst at Wachovia Securities. "Investors look at oil as an asset now, so it gets momentum."
Burnett says that because Congress approved legislation this week to suspend the SPR shipments, the Energy Department decided it should not sign bids received Tuesday for a contract for the July-December period.
The decision affects deliveries of crude oil beginning in August and continuing through December. The current stockpile amounts provides a 58-day safety net in case of supply disruptions, Burnett says.
The inventory currently stands 702.7 million barrels stored in the underground salt caverns located along the Gulf Coast of Louisiana and Texas. After the 2001 terrorist attacks, President George W. Bush raised the reserve by more than 30%.
Separately, House of Representatives speaker Nancy Pelosi says the suspension of deliveries to the Strategic Petroleum Reserve was "a tool that has in the past reduced prices for consumers." Pelosi says that Congress will send the legislation to Bush next week for signing.
The SPR has a capacity of 727 million barrels. Created in the aftermath of the 1973-1974 oil embargo, the SPR provides protection against a disruption in commercial oil supplies that would threaten the U.S. economy, as well as furnishes a national defense fuel reserve. It also allows the United States to meet part of its International Energy Agency obligation to maintain emergency oil stocks.
Copyright 2008 Agence France-Presse