US releases strategic oil reserves
The United States government decided Wednesday to release oil from its strategic reserves in an attempt to offset production cuts caused by hurricane Katrina which has devastated several states in the Gulf of Mexico and panicked oil markets.
US Energy Secretary Samuel Bodman made the announcement following information that 92% of crude extraction in the Gulf had been shut down and several refineries closed fearing the impact of the hurricane.
The Gulf of Mexico region accounts for a quarter of US oil and gas production.
"We will be tapping the supply. Our job is to get the infrastructure going again", said Mr. Bodman, although no detail was given as to how much of the 770 million barrels stored in abandoned salt mines in Texas and Louisiana would be released.
New Orleans, one of the cities most hit by "Katrina" and which is literally under water was also the main landing port for Venezuela's petroleum.
The Gulf of Mexico situation made world oil prices surge above 70 US dollars pb, but they dropped slightly to 69 US dollars following US Energy Secretary Samuel Bodman announcement.
Simultaneously to help cope with the situation the US government eased until September 15, environmental regulations involving diesel and gasoline.
"These temporary suspensions are necessary to make fuel available in the whole country", said Stephen Johnson, head of the Environmental Protection Agency.
In practical terms this means refineries in Alabama, Florida, Louisiana and Mississippi can sell gasoline with a higher vaporization rate and diesel with greater sulphur content.
Additionally other fuel regulations limiting the sale of gasoline in winter inventories were lifted which should help increase supply.
"This will have an immediate impact in the gas stations", said Mr. Bodman who added that the Gulf of Mexico coastal region has a network of pipelines which will enable refineries to tap the necessary crude.
However much depends on the resumption of power to supply refineries in the Louisiana and Mississippi area.
According to the latest report from the US Minerals Administration, 615 of the 819 extraction rigs and 96 of the 137 exploration platforms evacuated personnel in anticipation of the Katrina hurricane, cutting US daily production by 1,3 million bpd.
United States imports 13,6 million barrels of oil per day.
But despite most attention being placed on oil supply and prices, experts believe natural gas supplies could be most affected by the damage caused by Katrina.
"Crude oil production can be replaced by a release of barrels from the US strategic reserve, but there's no such safety valve for natural gas" said Barry O'Sullivan.
"The fear is that commercial stocks of gas could be severely dented, leaving inadequate inventories for the winter".