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Senate says halt oil shipments to reserve

Both Republicans and Democrats agree:  If shipments to the strategic petroleum reserve were halted, the oil would flow into the open market. The  President feels effect would be negligible.
/ Source: The Associated Press

The Senate is directing President Bush to temporarily halt the shipment of thousands of barrels of oil a day to the government's emergency reserve.

Both Democrats and Republicans said such shipments make no sense when oil is costing more than $120 a barrel and could better be used to add supplies to a tight market and possibly lower prices. Senators voted 97-1 Tuesday to suspend the shipments until the end of the year.
Bush has said the 70,000 barrels of oil being diverted to the Strategic Petroleum Reserve is such a small amount that it does not affect energy markets. Many senators disagreed.

Lawmakers' search for a response to high gasoline and oil prices comes as Bush is preparing later this week to travel to Saudi Arabia where he is expected to try to convince the Saudis to increase oil production. So far, Saudi Arabia and other OPEC countries have refused to do so, arguing the high price of oil stems from other factors than a shortage of supply.

Senate Majority Leader Harry Reid, D-Nev., brought up for vote a provision to halt oil shipments to the federal reserve until the end of the year. Senate Republicans said they want shipments halted for six months, but are expected to support the Democratic measure.

The House is taking up a similar provision later in the day that also is expected to get broad support.

By all accounts, the president is standing firm.

"Our position hasn't changed," said White House press secretary Dana Perino on Monday.

She said the president believes the emergency reserve needs to be increased "in order to protect ourselves against oil shocks" and that the oil being put — a tenth of one percent of global production — "would have a negligible impact on gas prices" if put into the market.

The government obtains the oil in lieu of royalties that otherwise would be paid by producers who pump it from federal land. If shipments were halted, the oil would flow into the open market.

Many Democrats and Republicans in Congress say it doesn't make sense for the government to essentially purchase oil for a reserve 97 percent full when crude is costing more than $120 a barrel.

"I think it's nuts," said Sen. Byron Dorgan, D-N.D. "It makes no sense at all. It increases gas and oil prices."

Sen. Pete Domenici of New Mexico, the top Republican on the Energy and Natural Resources Committee, said that "it's clear that many Republicans and Democrats agree that given the high price of gasoline it would be wise to suspend shipments to the SPR for the time being."

How much such a move would influence prices — if at all — is unclear.

"Taking barrels of oil off the market to put in the reserve puts upward pressure on markets," Frank Rusco, acting director of the Government Accountability Office, the Congress' investigative arm, told a hearing recently. Some lawmakers believe such a move could send a signal to oil markets and tone down speculation.

"We don't think it would have a big enough impact on prices for anybody to really notice," said Perino, when asked about the push in Congress to force the president to halt the shipments.