08-01-04 The US airline industry accused the Bush administration of recklessly driving up the cost of oil by purchasing unnecessarily large amounts of petroleum for the nation's strategic reserves at a time when prices are already high.
"The government is out buying fuel, it appears, without much regard for the impact that it is having on prices," said James C. May, the CEO of the Air Transport Association, the industry's main lobbying group.

May, speaking to a group of reporters at the association's headquarters in Washington, said oil purchases made by the Energy Department were adding enough demand to the world marketplace to drive up the price of oil by more than $ 6 per barrel, a major concern for airlines since jet fuel is their second biggest expense after labour.
Industry analysts attribute the high price of oil to tight supplies, rising demand because of the improving economy and fears about international terrorism. Senate Democrats said in a report last March that President Bush's decision after the Sept. 11 terrorist attacks to aggressively boost oil reserves had drained supplies and caused energy prices to rise.

At the time, the Energy Department rejected that logic and said the real problems were worldwide demand growth, reduced output from major oil-producing nations and supply disruptions in Nigeria and Venezuela. Department spokesman Drew Malcomb said those were still the factors underlying higher oil prices.
Each dollar increase in the price of oil translates into an additional 2-3 cents per gallon for jet fuel, according to the airline trade group. In October, airlines paid an average of 82.6 cents per gallon for jet fuel, about the same amount they paid a year ago.

May estimated that the impact of today's high oil prices on the airline industry was "easily $ 2 bn," or an amount equivalent to nearly half the industry's total expected losses for 2003. He said the industry was in the process of crafting a formal complaint to the Bush administration about its fuel purchasing policies.
The Energy Department is in the process of filling the Strategic Petroleum Reserve, now at 638 mm barrels, to its capacity of 700 mm barrels.

Meantime, the nation's commercially available inventory of crude, which traders watch closely to gauge whether supplies are adequate, is 3 % below last year's levels. For the week ending Jan. 2, commercial supplies stood at 269.0 mm barrels, down from 277.5 mm barrels a year earlier.
May does not oppose the policy of filling the reserve, but he said the government "needs to be a little more careful about how it goes about buying fuel on the open market."

Source: The Associated Press