U.S. Scales Back Release of Strategic Crude Reserves

The government is scaling back the release of crude oil from the nation’s strategic reserve largely because oil companies don’t want the inferior grade of oil that makes up the bulk of the emergency stockpile.

The government announced within hours of the assault on Iraq two weeks ago that a small part of the reserve would be opened to bids. But most of the available high-sulfur, or “sour,” crude oil in the reserve went unclaimed.

The sour oil, which makes up two-thirds of the U.S. Strategic Petroleum Reserve, is difficult to refine. Bidders have spurned the crude in favor of low-sulfur “sweet” oil that makes up the rest of the reserve of more than 580 million barrels stored in salt caverns in Texas and Louisiana.

The department initially planned to sell 11.25 million barrels of sweet crude and 22.5 million barrels of sour crude. The revised plan increases the allotment of sweet crude to 14.35 million barrels and cuts sour back to 2.95 million barrels.

The industry placed bids for 16.9 million barrels of the original allotment of sour crude, but many of those bids were below market rates, the government said.

“We clearly must remain sensitive to the market by making available the crude oil the industry is saying it really needs, and not allowing bargain hunters to take advantage of the taxpayers,” Energy Secretary James D. Watkins said today.