The price of oil had drifted upward to near historic highs and was expected to go even higher. The president responded by signing an order releasing millions of barrels of crude stored in the Strategic Petroleum Reserve. Within hours, the market price of oil dropped by just over one-third, the biggest single-day decline on record.
It is a scenario that President Clinton and Vice President Al Gore probably dreamed about as they ordered a new drawdown of the nation's oil stockpile to combat soaring gasoline and home heating oil prices. And it actually happened.
The year was 1991, and the president was George Bush. While almost no one now believes that Bush's manipulation of the petroleum reserve was the cause of the price break, experts said it may have contributed to the atmosphere that brought down oil prices.
Bush's order authorizing the sale of reserve oil was signed at 6 a.m. Jan. 17, 1991, a little more than 12 hours after U.S. and allied warplanes began bombing Iraq at the start of the Persian Gulf War. A few hours later, when the oil markets opened, the price collapsed, tumbling from $32 a barrel on the last trading day before the war to $21.44 on the first day of the allied assault against Iraq.
"It was useful that the oil from the reserve was available," said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York. "It had something to do with the psychology [contributing to the price fall]. But by the time it was actually released, the market had collapsed."
In retrospect, most oil analysts believe that the price of oil was driven above $30 a barrel by market jitters that followed Iraq's invasion of Kuwait in August 1990. When the allied bombing began, these analysts said, oil traders realized that Iraqi President Saddam Hussein would be unable to menace Saudi Arabia's vast reserves and probably already had done all the mischief he would be able to do.
At the time, the price break confounded experts who had predicted a price spike to $60 or more if war broke out. But analysts now believe that the way the war began reassured traders.
Although Bush ordered the sale from the strategic reserve on the first day of the air war, it took another week for the Energy Department to organize an auction. A total of 34 million barrels of crude oil was offered, but oil firms only bid on 17 million. The price had stabilized at just more than $20 a barrel and the influx of crude from the reserve seemed superfluous.
On Friday, Energy Secretary Bill Richardson announced that the government will release 30 million barrels over a 30-day period in an effort to drive down the crude oil prices that are hovering close to $35 a barrel.
Lichtblau said the latest sale may have a marginal effect on crude prices, which in turn may result in a slight reduction in the cost of gasoline and home heating oil.
"It might have an impact," he said. "It increases crude oil supplies, and under normal circumstances you would assume that would have a depressing effect on crude oil prices, which might be reflected in lower product prices."
But, based on the nation's experience in 1991, he said, other factors besides the petroleum reserve are likely to be more important in determining prices over the next few weeks.
Like the situation in 1991, this year's release of reserve oil will only work if the Organization of Petroleum Exporting Countries, or OPEC, in general, and Saudi Arabia in particular, cooperate. OPEC could overwhelm the administration's policy by cutting its own production to compensate for the oil pumped from the reserve.
In 1991, OPEC cooperated completely; after all, the U.S. government was waging a war that had a primary benefit for the Persian Gulf oil producers. The picture is a bit less clear now, although Lichtblau said the Saudis have given tacit approval to the administration's move.
"The Saudis say they are not comfortable with $34 or $35 oil," Lichtblau said. "They are more comfortable with prices in the high 20s. They are concerned that there might be attempts to find other oil or other energy sources [if prices get too high]. They would like to see prices come down."