White House says they may tap strategic oil reserves to ease gas prices

WASHINGTON (Reuters) - White House Chief of Staff William Daley said on Sunday the Obama administration was considering tapping into the U.S. strategic oil reserve as a way to help ease soaring oil prices.

Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. It is something that only is done -- and has been done -- in very rare occasions. There's a bunch of factors that have to be looked at. And it is just not the price."

"All matters have to be on the table when you see the difficulty coming out of this economic crisis we're in and the fragility," Daley added.

Congress has pressured the Obama administration to look to the emergency oil supply to ease consumers' fears over rising gasoline prices, which are threatening again to top $4 per gallon at U.S. gas stations.

Higher oil prices could undermine the fragile U.S. economic recovery and politically damage President Barack Obama as he moves toward his 2012 re-election bid.

While the White House has said governments around the world had options, including oil reserves, that could be used to prevent an inflationary price spiral due to oil supply disruptions, none have taken the rare step of tapping into their oil reserves.

U.S. oil prices jumped on Friday to more than $3 a barrel to $105.17, their highest level since September 2008, as fighting in Libya worsened and protests in the Middle East intensified.

The International Energy Agency said the revolt in Africa's third-largest producer had blocked about 60 percent of Libya's 1.6 million bpd (barrels per day) oil output, largely due to the flight of thousands of foreign oil workers.

On Thursday, U.S. Treasury Secretary Timothy Geithner played down the risks to the oil supply from political disturbances in the oil-rich Middle East and North Africa in testimony before a congressional panel.

He said there was "considerable" spare oil production capacity around the world and "substantial" reserves on hand.

"If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption," Geithner told the U.S. Senate Foreign Relations Committee.

Geithner said high food and oil prices were causing hardships in many parts of the world. But he said Americans were feeling less impact.

DEMOCRATS BACK DRAWDOWN

There has been support among Senate Democrats for tapping America's emergency oil supply to cool gasoline prices.

Senator Jay Rockefeller urged Obama on Thursday to allow a "limited draw-down" from the oil reserves, to "protect our national security by preventing or reducing the adverse impact of an oil shortage.

But Republican Senator Lamar Alexander, speaking on CNN's "State of the Union" on Sunday, said he would not support the oil reserve drawdown.

On Wednesday, U.S. Energy Secretary Steven Chu ruled out releasing oil from the reserve, saying ramped-up oil production in Saudi Arabia should lower the crude price.

"That's going to mitigate the price increase," he told reporters. "We're hoping market forces will take care of this."

Tapping the Strategic Petroleum Reserve, created in the mid-1970s after the Arab oil embargo, is a relatively rare event. It has been U.S. policy to turn to the emergency supply only when faced with a major supply disruption.

It was last done in 2005 following Hurricane Katrina, helping to drive oil prices down by about 9 percent.

British finance minister George Osborne on Friday signaled he would cut the country's fuel tax to counter soaring oil prices. A one penny-per-liter rise in the fuel duty planned by the previous Labour government was due to take effect in April.

(Additional reporting by Glen Somerville, Matt Spetalnick and Thomas Ferraro: Editing by Eric Beech and Paul Simao)