President Bush's decision to pump 5 million barrels of oil from the nation's strategic reserves was an effort to depress the oil market that may prove meaningless in the short term, analysts said Thursday.
The move to dip into the 590 million-barrel Strategic Petroleum Reserve was announced late Wednesday. Analysts called it a token gesture to warn that the economy cannot withstand higher oil prices.Oil markets largely ignored the announcement. Crude oil for November delivery hit $40.10 a barrel in early trading on the New York Mercantile Exchange, their highest level in 10 years, and closed at $39.54 a barrel, up 87 cents.
The market remained fearful that war would break out soon in the Middle East.
In Washington, Energy Secretary James Watkins asked Congress for permission to draw down up to an additional 15 million barrels of crude at a rate of up to 500,000 barrels a day. The program is designed to ensure that the so-far untapped reserves, held in salt caverns in Texas and Louisiana, can be used.
But Watkins told a House Energy subcommittee that the Bush administration is not inclined to use the oil to cool the superheated markets.
"We have no expectation that they will have any long-term market impact," Watkins said of the test sales.
Watkins said Bush is drawing on the stockpile to show his resolve to use it in emergencies.
But analysts, while acknowledging that Bush had sent a message, said it was not enough to move the markets.
"To have a significant impact on the market, something more than a token is required," said George Frie-sen, oil analyst at Deutsche Bank Group.
Five million barrels represents less than a third of the nation's daily consumption of 18 million barrels.
"There is still a huge war premium built into this market," noted James Ritterbusch, analyst with Paine-Webber.
Oil prices have nearly doubled since Iraq invaded Kuwait Aug. 2, lifting retail gasoline prices an average 23.5 cents to $1.31 a gallon, according to a recent American Automobile Association survey.
U.S. oil companies said they welcomed Bush's decision to tap the reserve, viewing it as a test of the nation's ability to react to an emergency.
"It's a very prudent move to test the Strategic Petroleum Reserves," said Sun Co. spokesman Paul Durkin.
Norm Altstedter of Shell Oil said that a "test drawdown is appropriate given the longer-term uncertainty of worldwide crude supplies."
None of the companies contacted had yet made a decision to buy oil from the government's reserve.
The move by Bush marks the first time the reserve has been tapped since it was established in 1975, two years after the Arab oil embargo.