U.S. issues terms for companies taking emergency oil
WASHINGTON (Reuters) - The United States, acting on President Bill Clinton's plan to boost domestic oil supply and push prices lower, on Monday issued details for releasing 30 million barrels of oil from the U.S. emergency stockpile.
The Clinton administration announced Friday that it would allow the Strategic Petroleum Reserve to be tapped to increase inventories, which have fallen to a 20-year low for heating oil. This would mark the first time the stockpile has been used for an emergency since the Gulf War in 1991.
Prices on oil markets, which were closed at the time of the Friday announcement, plunged on Monday in response to the prospect of new supplies. U.S. crude oil futures, which had spiraled to a 10-year high of $37.80 a barrel just one week ago, were trading more than $6 a barrel lower on Monday.
The November crude oil futures contract was at $31.25 in late morning trading, down $1.43 from Friday in anticipation of more oil in the market.
The White House announcement came one day after Democratic presidential candidate Al Gore urged the release of some oil, leading to Republican accusations that the move was politically motivated.
Under the plan, the 30 million barrels will be loaned to energy companies, which will sell the crude in the open market or refine it into petroleum products like heating oil. The companies must promise to return the oil, plus more barrels, to restock the reserve next year when prices are lower.
Oil must be returned by November 2001
On Monday, the Energy Department issued a formal solicitation for bids from energy companies to take the reserve oil. Bids are due by Friday.
After a week of analyzing the offers, the DOE will announce winning firms on Oct. 6. While deliveries of the oil could start as early as Monday, Oct. 9, the department expects to ship most of the oil during November.
Companies must promise to restock the stockpile with the borrowed crude, plus additional barrels of oil, between August and November 2001 when oil prices are expected to be lower.
The companies must state in their bids the amount of additional oil they would repay to the stockpile. The oil will likely be awarded to firms that agree to supply the most extra barrels, according to the Department.
Oil-consuming nations around the world breathed a sigh of relief at the drop in prices.
At the weekend meeting of the International Monetary Fund in Prague, some policymakers expressed concern that expensive oil could boost inflation and curb world economic growth in the United States, Japan and Europe.
The U.S. action was expected to be discussed by OPEC ministers at a special meeting of the cartel in Caracas on Wednesday and Thursday. The session has been billed as a 40th anniversary celebration of the cartel.
OPEC President Ali Rodriguez said oil prices are likely to drop to a range of $22 to $28 a barrel with the U.S. action and OPEC's own increase of 800,000 barrels per day that take effect on Oct. 1. "I believe that oil prices will not remain at the current high levels," Rodriguez told an Arab newspaper.
Gore defends oil release
On Monday, Gore again defended the release of oil reserves ahead of the November election, saying he would not go along with the "apologists" for big oil firms.
In an interview with NBC's "Today" show, Gore said the administration would not "sit around and do nothing" while consumers were being charged "outrageously high" oil prices.
Asked whether he was referring to his Republican opponent George W. Bush, Gore responded: "I'm not using any names, all I'm looking at is the proposals that have come from the oil companies. It's true that the big oil companies are supporting my opponent."
Bush's running mate, Dick Cheney, accused Gore Sunday of doing an about-face on energy policy "to score political points" with election day six weeks away.
Some oil industry analysts cautioned that even with the injection of new U.S. oil supplies into the market, the world is still vulnerable to price spikes.
"If Iraq decides to play tricks, the world does not have enough spare capacity to avoid a short-term shock," said Geoff Pyne, an oil consultant with Britain's Standard Bank.
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