US rejects OPEC call to free oil reserves

Oct 28, 2004 02:00 AM

by Doug Cameron in Houston and Kevin Morrison and Javier Blas in London

The US government rejected calls from the president of OPEC to release some of its strategic reserves to help reduce oil prices.
Purnomo Yusgiantoro, president of the Organisation of Petroleum Exporting Countries, and Indonesia's mines and energy minister, said the organisation had asked the White House to use the 670 mm-barrel Strategic Petroleum Reserve to "cool" prices at a time when spare production capacity was running at historically low levels. Mr Purnomo said OPEC members had also been asked to increase production "to give a signal to the market that we aren't short of supply".

The White House said there had been no discussions about tapping the reserve. President George W. Bush has consistently said the SPR will not be used to "manipulate prices". US oil executives and analysts also insisted that any release would have no effect on prices because refineries were running at capacity, while the reserves themselves are viewed as uncompetitive.
"Clearly there is enough crude in the world," said one analyst.

ConocoPhillips, the largest US oil refiner, said US refinery utilisation rose to 93 % in the quarter to September 30, while maintenance on infrastructure was above average levels, expected to continue for another three or four weeks.
Amerada Hess, which was active in bidding for part of the 30 mm-barrel release sanctioned by then President Bill Clinton in 2000, also played down the impact of the SPR. John Hess, chairman and CEO, said the group's main supplies from Venezuela and west Africa were more competitive than SPR crude.

Mr Purnomo's request marks a departure from OPEC’s line at the oil cartel's last policy meeting in September, when ministers said the oil market was adequately supplied and there was no supply crisis.
The US reported a larger rise than expected in crude oil inventories, which climbed by 2.4 mm barrels to 283.4 mm barrels, excluding the SPR. But analysts were more focused on the sixth consecutive weekly fall in distillates, used to make products such as heating oil. Reserves were down 500,000 barrels, and are now 14.7 % below last year.

Households and businesses in western industrialised countries will face increases in their heating bills this winter of up to 40 % above the last five years' average as prices soar. The last time families faced such a rise was in the 2000-2001 winter and it led to a sharp drop in consumer confidence, depressing retail sales and hitting the Christmas season. Consumer prices also rose sharply.
Official data for the European Union and US show retail prices for heating fuels are now up by between 15 and 40 % above the same period last year. Analysts said the trend would continue and could worsen over the winter season, which runs from November to March.
"We have entered dangerous territory indeed, when all the consumer can do is pray for a mild winter or, failing that, a global economic slowdown," the London-based Centre for Global Energy Studies said.

The US Department of Energy forecasts families in the US northeast will pay around $ 1,220 for heating oil next winter, an increase of 28 % above last winter and 51 % above the last six-season average. Families in the Midwest, where natural gas is the main heating fuel, will pay $ 1,000, a 40 % increase above the historical average.
In the EU, retail prices for heating oil are up 41 % on October last year. In Germany, the largest European heating oil market, prices have increased by 46 %. This pushed inflation up to 2.1 %, the highest in nearly three years. Consumers who have postponed rebuilding winter stocks in the hope of lower prices are now proceeding with purchases, adding to price pressure, the International Energy Agency said.

With stocks below historic averages, distributors can hardly meet demand. In Europe, the problem has been exacerbated by the surge in diesel demand this summer, as more diesel cars replace petrol vehicles. This has squeezed production of heating oil.
"This could limit the market's ability to boost regional heating oil output and meet a potential demand spike, thereby heightening Europe's growing dependence on distillate imports," the International Energy Agency warned recently.

Source: Financial Times
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