Oil drops as US targets reserves

OIL prices dropped today after the Bush administration sparked controversy by saying it may release crude stocks from its strategic petroleum reserve to cool world markets.

The shock move is certain to lead to charges of political opportunism against George W Bush given the US Presidential election is just six weeks away.

US crude eased 34 cents to $48.12 a barrel. In London, Brent fell 28 cents to $44.85.

The White House said it may loan up to two million barrels to two refiners in a fortnight, given the 'physical disruption' caused by Hurricane Ivan to the offshore oil industry in the Gulf of Mexico.

Oil prices have rocketed towards $50 a barrel in recent days on rising concerns of a fresh supply squeeze as demand for winter heating fuel grows.

US heating oil prices scaled all-time peaks of $1.3630 a gallon yesterday. Citigroup today raised its Brent oil price forecast to $33 a barrel from $26 for 2005.

The US government last tapped the strategic reserve, which holds 700 million barrels of oil underground in Texas and Louisiana, after Hurricane Lili in 2002.

Two years before, former President Bill Clinton controversially put 30m barrels on the market to bring heating oil costs down. At the time, Bush slammed the move for putting America's long-term national security at risk.

He said: 'The strategic reserve should not be used as an attempt to drive down oil prices before an election.'