New York - According to Reuters, the Bush administration will release oil from the country's Strategic Petroleum Reserve to offset production losses in the Gulf of Mexico due to Hurricane Katrina, the Energy Department said on Wednesday.

Energy Secretary Sam Bodman told a television interviewer that the department would make an official announcement later in the day. A department spokesman said flows of oil from the reserve to a refiner on the U.S. Gulf Coast could begin as early as Thursday, adding that the department was reviewing other requests for loans of oil from the reserve.
 
More than 95 percent of crude oil output from the Gulf of Mexico was shut in as a result of Katrina. The Gulf is responsible for about a quarter of U.S. oil production.

The loans had been expected given the scope of damage from the hurricane, which is expected to cause insured losses of up to $25 billion. U.S. Senator Mary Landrieu said Tuesday night that three oil refineries in Louisiana were "under water."

But analysts said the loss of refineries as a result of Katrina was actually a bigger concern than the cuts in crude output, given that there was virtually no spare refining capacity in the market before the storm.

The price of U.S. crude fell from about $70.31 as Bodman announced the decision to as low as $68.91 a barrel, before rebounding. Fears about long-term supply losses and refinery damage had pushed the price steadily higher.

"Most of us had known days ago that the U.S. would loan oil but some people interpreted the headline as a release of oil, possibly of products. Then the market realized and started buying it back," said Deborah White, senior energy analyst at SG Commodities.

"Crude is not the problem. The heart of the problem is how much refining capacity we have lost," White said.