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Diverting oil into reserves defended

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Associated Press / November 9, 2007

WASHINGTON - Energy Secretary Samuel Bodman yesterday defended plans to divert oil into the federal emergency reserve, although he acknowledged that tight supplies likely are one reason for surging crude oil prices.

The Energy Department said it has awarded contracts to three companies - Shell Trading Co., Sunoco Logistics, and BP North America - for 12.3 million barrels of oil to go into the government's Strategic Petroleum Reserve, beginning in January.

Deliveries are scheduled at a rate of 70,000 barrels a day for six months.

Some Democrats in Congress have repeatedly criticized the federal purchase of oil for the reserve, diverting it from commercial markets, when supplies are tight and prices increasing.

Bodman, when asked about the contracts after a speech to an energy forum, said the amount of oil going into the reserve is so modest - about a 10th of a percent of global supplies - it won't have any appreciable impact on prices.

"It's a very modest level when compared to . . . oil we use in this country. It does not materially affect the price of oil," he said. "We plan to continue filling the reserve by a modest rate."

Bodman said the administration is concerned about soaring oil prices and he has been "in regular touch" with foreign oil ministers including those in OPEC to urge more production.

"I certainly have made my views known," said Bodman, alluding to his discussions with OPEC and other foreign oil officials. "I am hopeful that we will see a response from them. Whether they respond or choose to respond is up to them and not up to me. I'm doing the best I can within the limited sets of options that we have."

Bodman said a supply shortage may be partly responsible for the run-up of oil prices that in recent days has approached the $100-a-barrel mark.

Prices receded somewhat yesterday with light, sweet crude for December delivery falling slightly to just over $95 a barrel on the New York Mercantile Exchange. Crude prices moved above $98 a barrel this week.

OPEC's reluctance to pump more crude and the weak US dollar have been cited by analysts as among the reasons for the price surge. Last month, OPEC ministers agreed to boost production by 500,000 barrels a day beginning this month, but that seemed to have little impact on prices.

"We're very concerned (about oil prices) because . . . it's like an unplanned tax increase on American families," said Bodman.

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