Administration Stops Oil Buys For Strategic Reserve

WASHINGTON — Bowing to congressional pressure, the Bush administration announced Friday it would end purchases of crude oil for the Strategic Petroleum Reserve, a largely symbolic step unlikely to bring down gasoline prices.

Regular gasoline hit a record $3.79 per gallon, on average, the American Automobile Association (AAA) reported Friday in a nationwide survey.

Meeting in Riyadh with Saudi Arabia's King Abdullah, President Bush appealed to the monarch to increase oil output and was apparently rebuffed.

Saudi Oil Minister Ali al-Naimi said the Saudis had decided a week ago to raise production by 300,000 barrels a day, and the kingdom would go no further.

"Supply and demand are in balance today," al-Naimi told reporters in Riyadh. "How much does Saudi Arabia need to do to satisfy people who are questioning our oil practices and policies?"

White House national security adviser Steve Hadley told reporters traveling with Bush that the Saudis did not rule out future output increases, if warranted by global demand.

"I think the message that came back from the Saudis (was), 'We hear you, we know the markets are under pressure and we're doing all we can do,'" said Hadley. "I think the bottom line is, the problem of high gas prices is more than just about oil, it's more than just about Saudi, and it's more than just about short-term production."

Earlier this week, Congress voted to require the Energy Department to suspend purchases of crude oil for the Strategic Petroleum Reserve (SPR), a series of cavernous underground salt domes along the Louisiana and Texas Gulf Coast.

The Department of Energy will not extend contracts beyond July 1 and will begin curtailing purchases in the coming weeks.

There are currently 703 million barrels of oil in the SPR - roughly a month's supply - and the reserves are 97 percent full.

Bush had opposed cutting off the SPR purchases. He told reporters two weeks ago that ending the daily purchase of 76,000 barrels of oil for the strategic reserve would have no impact on price, as it represents less than one-tenth of 1 percent of global oil use of 86 million barrels a day.

U.S. consumers and businesses burn 20.2 million barrels of petroleum products a day, including 9.3 million barrels a day of gasoline. There are 42 gallons in a barrel.

Saudi Arabia is the world's largest oil producer, pumping about 11 percent of the world's total supply. When it raises output in the weeks ahead, the country will be producing about 9.5 million barrels of crude oil a day.

Bush, who has nurtured close relations with King Abdullah, appealed to the U.S. ally earlier this year for an increase in oil output, also to no apparent avail. The Saudis have faced pressure from other oil producers to hold output down, as oil prices have climbed above $127 a barrel, a record high.

Hadley told reporters that raising Saudi output was no magic bullet.

"That won't solve the problem," he said, adding that other factors affecting price include uncertainty and market speculation.

What's needed, he said, is investment in new production and refinery capacity in this country, including the development of offshore drilling sites and oil exploration in the environmentally sensitive Arctic National Wildlife Refuge in Alaska.

"We've got to make investments in energy, particularly at home. That means new production. That means looking at exploration for oil and being willing to develop it in U.S. territory," said Hadley.