Bush defends oil reserve boost as GAO probe sought

WASHINGTON (Reuters) - President George W. Bush said on Thursday adding oil to the U.S. Strategic Petroleum Reserve wouldn't have much impact on available supplies, but a senator wants the Government Accountability Office to investigate whether the president's policy violates U.S. law.

Democratic Sen. Charles Schumer, who asked for the GAO probe, said the administration's plan is distorting the market just as crude tops a record $100 a barrel.

The government plans to deliver 12.3 million barrels of oil to the reserve in the first half of this year at a rate of about 70,000 barrels a day.

But Bush said the crude volumes going into the emergency stockpile would not have much market impact.

"I'm not sure that's going to have much of an effect anyway when you think of the total supply of crude oil consumed on a daily basis and the rate at which the SPR is being filled up," Bush told Reuters in an interview.

U.S. oil demand averages about 21 million barrels a day. The amount of oil going into the reserve will be about 1.9 million barrels for January alone.

Schumer said the administration is skirting a 1995 energy law passed by Congress that requires the government to minimize the cost of acquiring the oil for the reserve, including oil that energy companies turn over in lieu of paying cash royalties for drilling on federal leases.

The government isn't paying cash for the reserve oil, but instead is using oil acquired through that royalty-in-kind system.

Schumer also said that adding oil now to the reserve violates the Energy Department's own guidelines to avoid affecting heating oil, gasoline and other petroleum product prices paid by consumers.

Many energy experts believe putting crude in the reserve pushes up gasoline prices, which the government already estimates will hit a record $3.40 a gallon this spring.

"The administration's insistence on refilling the strategic reserve at this time isn't just a bad business decision, it may very well go against what is intended by law," he said.

The stockpile, created by Congress in 1975 in response to the Arab oil embargo, now holds about 698 million barrels of crude at four storage sites in Texas and Louisiana.

Schumer said in 2006 the administration suspended oil deliveries to the stockpile in order to make more crude available to refineries for processing into gasoline.

The White House said at the time that "when supplies are tight, every little bit counts" and the oil reserve was "sufficiently large to guard against any major supply disruption over the next few months."

In addition to stopping deliveries, Schumer and other lawmakers have called on Bush to release oil from the reserve to boost supplies and help lower prices.

Bush told Reuters he was concerned about oil at $100 a barrel, but he would not release supplies from the stockpile to influence prices.

"The SPR is available for emergencies, terrorist attacks, massive dislocations, and that's what it's there for," Bush said. "It certainly creates difficulty, but no, it's (a high oil price) not the kind of emergency that would define the use of the SPR as far as I am concerned."

(Additional reporting by Caren Bohan; Editing by Russell Blinch and Jim Marshall)