updated 9/24/2004 5:54:27 PM ET 2004-09-24T21:54:27

An agreement has been reached to lend 1.7 million barrels of oil from the government's Strategic Petroleum Reserve to two companies whose refineries were running short of crude because of Hurricane Ivan, the Energy Department said Friday.

The department said 1.4 million barrels of crude would begin flowing Saturday to two Shell Oil refineries, in Texas and Louisiana; and another 300,000 barrels to the Placid Refining Co. in Louisiana.

A number of additional oil swaps stemming from hurricane-related supply disruptions are under negotiation, but department officials would not identify the companies nor the amounts of oil involved.

"We're still reviewing requests and will act upon those requests as appropriate," said DOE spokeswoman Jeanne Lopato.

Industry analysts anticipate that probably no more than 4 million barrels will be made available, probably for a short period of time. The reserve has 670 million barrels stored in salt domes on the Louisiana-Texas coast. The deals call for the oil to be paid back once supply problems go away.

The Bush administration has steadfastly said it would not use oil from the government's emergency reserve to bring down high gasoline prices, arguing the oil is meant to be used only to deal with significant supply disruptions.

Energy Secretary Spencer Abraham said that includes protecting consumers from supply shortages caused by natural disasters such as Hurricane Ivan's damage to Gulf of Mexico oil platforms and pipelines.

Production halted before hurricanes
Deborah White, an economist for London-based SG Commodities Research, said Gulf Coast refiners began shutting down facilities ahead of the hurricane, which resulted in lost production of at least 9.6 million barrels so far.

"Production is recovering more slowly," White said. She predicts another 3.5 million barrels probably will be lost to Gulf Coast refineries.

Placid Refining Co. told the Energy Department it needed the additional 300,000 barrels of crude to keep making jet fuel for the U.S. military. The company, owned by Petro-Hunt, has a contract to provide the military 6.3 million gallons of jet fuel a month.

Lopato said shipments to the Placid refinery already had begun. Oil from the government reserve will begin to flow into the Shell refineries Saturday, she said.

"The shipments will ensure the continued and adequate production of gasoline and oil products for the Gulf Coast region," said Mark Singer, a spokesman for Shell Trading U.S., based in Houston.

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