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Bush oil stockpile plan could cause oil prices to rise

Michael Roston
Published: Wednesday January 24, 2007
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A component of the energy independence plan laid out by President George W. Bush in his State of the Union address last night could result in higher oil prices. According to a report today from Bloomberg News, the president's call to double the nation's Strategic Petroleum Reserve could put a new "floor" on the prevailing price in global oil markets.

President Bush again emphasized the theme of reducing America's dependence on foreign oil in this year's State of the Union address. In the course of his proposals, he made reference to the need "to further protect America against severe disruptions to our oil supply." He therefore called on "Congress to double the current capacity of the Strategic Petroleum Reserve."

But a report at Bloomberg News suggests this step could lead to a gain in the price of oil around the world. Bloomberg reporters Manash Goswami and Hector Forster write that doubling the reserve "may help to stem a six-month slide in prices as China, India and South Korea bolster their defenses against shortages as well."

They added, "The U.S. plan "helps puts a floor in the market," said Antoine Halff, head of energy research at Fimat USA Inc. in New York. "It creates competition for the same barrels. It tightens the market on top of the strategic reserve builds elsewhere such as China.""

Because winter has been mild in much of the country, oil prices have been low for the past few months.

According to the Department of Energy, the strategic petroleum reserve, or SPR, was created after the 1973-74 oil crisis. The 2005 Energy Policy Act called for increasing the SPR's storage capacity to 1 billion barrels of oil. Managed by the Department of Energy, the SPR oil is stored "in salt caverns...deep within the massive salt deposits that underlie most of the Texas and Louisiana coastline."

The system of petroleum reserves in the United States goes back to 1912 when the Naval Petroleum and Oil Shale Reserves were first established. One such reserve, at the Teapot Dome in Wyoming, was involved in a massive scandal during the administration of President Warren Harding.

The full Bloomberg News article can be accessed at the Bloomberg website.