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Last Updated: Friday, 2 September 2005, 22:44 GMT 23:44 UK
Oil prices drop on reserve offers
Unoccupied oil rig in the Gulf of Mexico
Nearly 60 oil platforms and rigs have been damaged or displaced
Oil prices fell on Friday on confirmation that foreign oil reserves will be made available to the US in the wake of Hurricane Katrina.

The Paris-based International Energy Agency (IEA) said its member countries would release two million barrels a day to help ease the crisis.

All 26 IEA member countries backed the measures which will take effect for an initial period of 30 days.

US light crude fell $1.90 to $67.57 a barrel on Friday.

On Wednesday, it hit an all-time high of $70.85 a barrel.

"Member countries are acting in solidarity with the US in addressing this loss and restoring confidence to the oil market," the IEA said.

The US is already using stocks from its Strategic Petroleum Reserve amid fears of a sharp rise in gasoline prices.

Gasoline futures dipped 6 cents to $2.3405 a gallon on Friday, although remaining twice as expensive as a year ago.

Brent crude in London also settled back, down $1.66 at $66.06 a barrel.

We've had some good signs, we'll just keep working at it
John Felmy, American Petroleum Institute

Emergency action

IEA members - which include the UK, France, Germany and Japan - hold a combined stockpile of 4 billion barrels, 1.4 billion of which governments control for emergency use.

The two million barrels a day being released for the next month is roughly equivalent to the daily output of Kuwait - and much of it is held in the form of petrol products which need no further processing.

The organisation has intervened in the past to meet supply shortages, most notably during the 1991 Gulf War.

Delay

However, the IEA's oil contribution from European countries will take at least 10 days to reach US shores, as tanker space is already in short supply with many commercial ships already under charter.

"The IEA announcement "has definitely relieved some of the pressure," said oil broker Tom Bentz of BNP Paribas.

"But the problem is, it's going to take a long time."

Chevron oil refinery in Pascagoula, Mississippi, flooded out by Hurricane Katrina
Flooded oil refineries have compounded the problem

A host of other nations have offered assistance including Venezuela, the world's fifth largest oil producer and a staunch critic of US foreign policy.

Also, fuel supplies are being stepped up from the Gulf Coast by the Colonial and Plantation pipelines, which carry gasoline and diesel to East Coast markets.

The return of the Capline pipeline, which brings crude oil from the Gulf Coast to Midwest refiners, was also good news, analysts said.

"We've had some good signs, we'll just keep working at it," said John Felmy, chief economist of the American Petroleum Institute, a Washington-based trade group.

Assessing the damage

More than 7 million barrels have been lost since 26 August while 95% of oil production in the Gulf of Mexico - comprising 30% of the country's entire crude oil output - is out of commission.

Clearly this will be a challenging time for the economy. The fortunate thing is that the economy is performing so well
John Snow, Treasury Secretary
Oil companies are currently assessing the damage wrought by Hurricane Katrina, which is estimated to have killed thousands of people in Louisiana, Mississippi and Alabama.

According to the latest estimates from the American Petroleum Institute, 58 offshore oil platforms and drilling rigs have either been displaced or disabled.

US gasoline (petrol) prices have jumped in recent days on concerns that refineries closed by Katrina will take time to get back to full output.

According to the AAA motor club, gasoline now costs an average of $2.62 a gallon in the US, compared with $1.86 a year ago.

President Bush has urged Americans to be prudent in their use of fuel over the coming weeks, telling people not to buy gas unless they need it.

On Friday night, Treasury Secretary John Snow said the US economy was proving resilient to the "mind-boggling" impact of Katrina.

"Clearly this will be a challenging time for the economy. The fortunate thing is that the economy is performing so well," he said after crisis talks with Federal Reserve chairman Alan Greenspan.




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