World oil prices were expected to ease on Monday following the decision by the Clinton administration to dip into its emergency reserves.
But traders questioned whether the effect of the decision to pump out 30 million barrels over 30 days from the US Strategic Petroleum Reserve (SPR) would amount to more than a quick, temporary fix.
Crude prices nosed sharply lower in New York Friday in anticipation of the move after easing earlier in the day in London.
Benchmark light sweet crude for November delivery shed 1.32 dollars to close at 32.68 dollars a barrel in New York. In London, Brent crude closed down 1.48 dollars at 31.25 dollars.
The US consumes some 20 million barrels of oil a day -- and for Tom Bentz, an oil trader with Paribas Futures Inc in New York, 30 million barrels pumped over 30 days is small beer.
Bentz said that in the short time, the deal will probably apply some downward pressure on oil prices.
"How much lower? I don't think we're going to see a whole lot lower, maybe another 2.00 dollars a barrel maximum," he said.
Earlier in the week crude prices hit 10-year highs amid heightened tension in the Gulf amid sabre-rattling by Iraq aimed at Kuwait.
The New York price was down for the second day in a row after dropping by 1.24 dollars a barrel on Thursday, as traders responded to Vice President Al Gore's demand that the Clinton administration dip into the reserves.
With a presidential election less than seven weeks, the issue of oil prices has acquired a political dimension. High costs of gas and heating oil could cost Gore votes in the race against Republican rival, Texas Governor George W. Bush.
Announcing the decision to dip into the reserves, US Energy Secretary Bill Richardson insisted that it was taken solely with the aim of maintaining supplies.
"We have extremely low home heating oil stocks, low crude oil stocks for the winter, especially in the Northeast area," he said.
"And the reason that we are doing this is not for price, but to deal with disruption, to deal with the problems of extreme shortages."
The SPR holds about 570 million barrels of crude in caves along the Gulf of Mexico coast, designed to be used in a national emergency.
US Treasury Secretary Lawrence Summers cautioned earlier Friday that tapping into the SPR should not be done lightly.
"It is important to be prudent and careful in possible use of the strategic petroleum reserve," said Summers before the announcement.
However, he identified high oil prices as a "real, important economic problem."
"This is a situation that needs to be monitored (and) as conditions change, we need to be prepared to take whatever actions would be most constructive."
More stability in oil prices, in line with the average prevailing price in recent years, is "very much in the interest of the global economy," Summers said.
Richardson said Clinton had decided to tap the SPR with winter looming and amid fears of price hikes and shortages of vital heating oil.
"We need to make sure that American families keep warm this winter and get their heating," he said.
Texas governor Bush responded to the decision with a renewed attack on the motives of Gore and the Clinton administration.
"The Strategic Petroleum Reserve needs to be used in case of war and (in) case of major disruption of supply," he said.
"I believe the vice president has made this decision, with the support of the president, for short-term political gain."
Richardson said after 30 days the energy situation would be reviewed. He did not rule out using more of the reserve.
"We are prepared to take further action if necessary," he said – NEW YORK (AFP)
© 2000 Al Bawaba (www.albawaba.com)
