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U.S. to buy reserve oil even if cost tops $100/barrel
Fri Apr 18, 2008 3:59pm EDT
By Tom Doggett

ALEXANDRIA, Virginia (Reuters) - U.S. Energy Secretary Sam Bodman said on Friday that the government won't delay its plan to buy oil this summer for the Strategic Petroleum Reserve even if crude prices stay above $100 a barrel.

"As best I can tell, yes, that's correct," Bodman said when asked by Reuters if the department would still purchase oil if prices were more than $100 per barrel during the peak summer driving season.

The price of U.S. oil reached a record $117 a barrel on Friday at the New York Mercantile Exchange.

The Energy Department plans to spend about $584 million to help replace some of the 11 million barrels of crude from the reserve it sold to refineries in the autumn of 2005 after Hurricane Katrina disrupted petroleum supplies.

The department will first conduct an analysis on the impact to the market and to consumers of buying oil for the reserve before it would solicit bids to energy companies. In reviewing any bids, the department would look to see if buying oil would be a good deal for taxpayers.

The emergency reserve, created by Congress following the 1973-74 Arab oil embargo, now holds about 701 million barrels of crude at four underground storage sites in Texas and Louisiana.

Many U.S. lawmakers and energy experts have urged the department to temporarily halt crude deliveries to the reserve, which now average about 70,000 barrels a day, arguing they keep valuable supplies off of the market and help to push up oil and gasoline prices.

However, Bodman told reporters he was against a recent proposal from the Republican presumptive presidential nominee Senator John McCain to stop adding crude to the reserve with prices so high and also to suspend for the summer the federal excise tax of 18.4 cents levied on each gallon of gasoline sold.

"I don't think it's a good idea," Bodman said of suspending the gasoline tax. He said the revenue is needed to help build and repair U.S. highways and bridges.

As for McCain's idea to delay putting more crude into the oil reserve, Bodman said: "That is not something I'm in favor of."

Bodman said the United States needs to build its emergency oil stockpile so it can replace 90 days of crude imports if necessary, and now the reserve only holds about a 55-day supply.

Separately, Bodman said growing reliance by the United States on fuel ethanol, made mostly from corn, has helped to increase food prices.

"Well, I think it is fair to say that it has contributed to it," said Bodman. "Food, corn is more expensive than it was."

Bodman said the weak U.S. dollar has also made commodities, such as grains and oil, more attractive investments, which has helped to push up prices.

(Reporting by Tom Doggett; Editing by Marguerita Choy)


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