US frees up emergency oil supply

Hurricane Ivan continues to have an impact on oil prices

The US government is to let oil refineries borrow crude from its emergency stockpile to make up for supplies disrupted by Hurricane Ivan.

A "limited quantity" will be released, said the US Energy Department.

The decision comes after oil prices briefly hit the $49 barrel mark this week on continuing concerns over the level of US stocks.

US light crude traded up 11 cents to close $48.46 dollars a barrel in New York on Thursday.

Commercial crude stocks fell 9.1 million barrels to 269.5 million barrels last week, their lowest since 6 February.

The Energy Department said it would approve the loans once the details were worked out with the refineries, but did not say how much oil would be loaned or which refineries it would go to.

Salt caverns

Hurricane Ivan lashed through the Gulf of Mexico, hitting offshore oil production and coastal refinery operations, costing the industry 9.6 million barrels of oil output.

Strategic Petroleum Reserve Current inventory - 670 million barrels Storage capacity - 700 million barrels Maximum drawdown capability - 4.3 million barrels a day for 90 days

This sparked panic in the markets as oil prices looked close to breaking through the $50 a barrel mark.

Now it is the job of the Strategic Petroleum Reserve (SPR) to ease the oil supply crisis.

The SPR was created by Congress in the mid-1970s following the Arab oil embargo.

The oil is hidden away in underground salt caverns in Texas and Louisiana, which are deep enough to hold Chicago's Sears Tower building.

Back in 2002, the US government also allowed a short-term oil loan to refineries following supply disruptions in the wake of Hurricane Lili.