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| Jim Gillingham of Valero Energy Corp. talks about getting a damaged refinery back in production. (October 3) |
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NEW YORK (CNN/Money) -
Oil prices fell more than $2 a barrel Tuesday morning before recovering somewhat as Bush administration officials said they were prepared to tap oil reserves to make up for production shortfalls due to hurricanes Katrina and Rita, and Bush himself called for the construction of more refineries.
November crude futures ended down $1.57 at $63.90 a barrel on the New York Mercantile Exchange, having reached a session low of $63 earlier in the day.
Speaking at a press conference at the White House, Bush asked Congress to send a bill to his desk that allows refineries to expand and new refineries to be built.
"It ought to be clear to everybody that this country needs to build more refining capacity to be able to deal with the issues of tight supply," he said. He noted that a new refinery hasn't been built in the country since the 1970s.
Some experts have speculated that refinery bottlenecks, not crude shortage, have resulted in the restricted flow of refined energy products.
Easing the regulations on refinery construction has been part of Bush's energy plan for the last several months, and much of Tuesday's slide in crude prices was also likely due to Monday's announcement that the U.S. may tap its strategic reserve.
Noting the sluggish recovery process for oil production and refinery facilities in the Gulf Coast following hurricanes Katrina and Rita, Energy Secretary Samuel Bodman said Monday that the U.S. would tap the Strategic Petroleum Reserve (SPR) to make up for the energy supply shortfall.
As of Monday, 93 percent of crude production and 75 of natural gas facilities were closed in the Gulf of Mexico due to the hurricanes, according to Reuters. The region supplies the U.S. with more than 25 percent of its incoming crude oil and natural gas.
A wave of profit-taking also struck the market as investors became more certain that the demand for crude was diminishing.
"I think that what we may be seeing is the realization that if crude is not the problem, then we can't justify prices at $60 a barrel," Bill O'Grady, the assistant director of market analysis for A.G. Edwards, told CNN/Money.
Even if the U.S. government opted to tap crude stockpiles, ExxonMobil (down $1.77 to $60.72, Research) president Rex Tillerson told Reuters Tuesday that government efforts to increase the supply of crude is not needed by the industry.
"Out of crude that was made available, only a third of it was actually picked up by the industry," Tillerson told the news agency.
Oil was loaned from the SPR following Hurricane Katrina to compensate for down oil production facilities along the Gulf Coast.
November wholesale gasoline prices fell as well, dipping by 5.22 cents to $2.01 per gallon.
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Gas and diesel prices head higher -- Click here.
Click here for CNN/Money's special report 'Oil Crunch 2005'.
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