[Congressional Record Volume 146, Number 26 (Thursday, March 9, 2000)]
[Senate]
[Pages S1370-S1371]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    OIL SUPPLY AND THE PRICE CRISIS

  Mr. SCHUMER. Mr. President, I rise today to once again address an 
issue I have been talking about since last September, that of global 
oil supply and prices. Back in September, I was talking about the 
possibility of an impending oil crisis due to OPEC's manipulation of 
global supply. As we moved into the fall, I joined with the 
distinguished Senator from Maine, Ms. Collins, and we started talking 
about the likelihood of a crisis. Well, now it is a certainty.
  As we all know, that crisis struck early this winter as home heating 
oil prices in the Northeast pierced the $2-a-gallon level --something 
unheard of in the past. What began as a heating oil supply and price 
shock in the Northeast this winter is now rolling as thunder across our 
entire Nation. It is affecting the farmers throughout America in the 
cost of diesel fuel for their planting season. It is affecting truckers 
who are having a very difficult time making a living because they are 
so dependent on the cost of diesel fuel. It has affected airlines with 
the $20 surcharge. It has affected blue chip stocks. Yesterday, an 
analysis read that one of the predominant reasons Procter & Gamble 
stock had sunk so was the high price of oil.
  Yet, unfortunately, things could--and are likely to--get worse if 
nothing is done. It is likely to get worse with the price of gasoline. 
Gasoline, in my judgment--and I have been saying this for several 
months--could hit $2 per gallon this summer and maybe more if nothing 
is done. Perhaps worst of all, this oil shock could very well throw 
sand in the gears of our high-flying economy as the Federal Reserve, 
worried about inflation, raises interest rates and the wonderful growth 
we have experienced now for a record number of months could be thrown 
into doubt or even jeopardy.
  The numbers present a very dim outlook for us. Oil inventories are at 
a 20-year low. Global supply is 2 million barrels below daily demand. 
Coming off home heating oil prices that set records and defied gravity, 
we are heading straight into a gasoline supply and price debacle this 
summer.
  We have now reached the point where rising oil prices are no longer a 
nuisance but, rather, a crisis for our economy. Two days ago, Procter & 
Gamble, as mentioned, lost $34 billion in market value--nearly one-
third of the entire worth of a company that spent decades and decades 
building up its value; boom, down one-third. It was because of profit 
worries due in large part to oil prices.
  In fact, analysts are attributing the 15-percent drop in the Dow 
since the beginning of the year directly to oil prices and the 
inflationary effects. I understand the Nasdaq index continues to go up, 
but you can't have the industrial and traditional part of the economy 
without it affecting the tech parts of the economy, soon enough, 
unfortunately. If all of this doesn't wake us up to an economic crisis, 
I don't know what will.
  Gas prices are now about $1.50 a gallon. They have set another 
record. That is the national average. Of course, in certain parts of 
the country, particularly on the West Coast, they are considerably 
higher, but $1.50 is about the average in my State--a little higher in 
downstate areas, and a little lower in some of the upstate areas, 
although some, such as Binghamton and Utica, have pierced $1.50 as 
well. But this summer by Memorial Day, as the summer driving season is 
upon us, if no further oil is released, we will likely hit $2 per 
gallon, self-service regular, average in the country.
  This will do dramatic damage not only to people's pocketbooks and 
wallets but to our economy. New York--both upstate and downstate--
depends on tourism. In the summer season people are more likely to 
drive. They are less likely to curtail their vacation.
  Of course, the continued problems in agriculture, in transportation, 
and in manufacturing will get worse if oil prices continue to rise. 
They rose about 44 cents today on the market, and not as high as the 
$34 a barrel they were 4 days ago, but that is scant relief. Given the 
laws of supply and demand, it is quite likely they will exceed the $34 
rather shortly.
  We are going to hear about this from our constituents. The upcoming 
impending gasoline crisis will be a major issue in the campaigns this 
summer and fall, if nothing is done.
  I don't blame our constituents for asking us to do something because 
we have not acted resolutely with OPEC. We have not used the one ace in 
the hole that we hold in our hand to compel OPEC to increase 
production--our well-stocked, 570-million-barrel Strategic Petroleum 
Reserve. OPEC, by the way, cut back on supply, my friends, 5 percent 
last year, and their revenues have increased 59 percent. That is how 
tight the oil market is.
  For the last several weeks, Secretary Richardson, doing his best, has 
met with various OPEC and OPEC-aligned ministers to try to get them to 
increase production by their March 27 meeting. It seems very plausible 
and likely that Secretary Richardson's efforts have helped move some 
members of OPEC, and it is likely production will increase somewhat. 
But there is also too good a chance, unfortunately, that ``somewhat'' 
will not be enough. There is too good a chance that while OPEC will 
increase production, the amount they decide to increase production 
won't avoid the impending crisis in gasoline prices and oil prices this 
summer.

  The chart to my left shows the various OPEC scenarios. If we don't 
see at least a 2-million-barrel increase in production right away, and 
see that 2-million-barrel increase continue into the third quarter, the 
prices we have now--much too high already--will look like the good old 
days.
  This chart is conservative. Here is what it shows. If there is no 
change in OPEC output, if they keep oil production as they have it--
they have talked a good game, but they haven't done anything--the price 
will go way above $40 a barrel to $41.
  Let's say they do what most people think is likely, that they will 
try some palliative measure with a 1-million-barrel increase in the 
second quarter. Then the price still goes up from what it is now to 
about $35 or $36 a barrel.
  Let's say they pledge to increase oil by 1 million barrels a day in 
quarters 2 and 3. It still goes up from what it is today. And even if 
they pledge the 1-million-barrel increase permanently, the price goes 
up but not on as great a slope. The worst thing about this chart is 
that with 1 million barrels a day, even permanently, the price of oil 
continues to go up, which means the prices today will be lower than in 
the future.
  Today, the New York Times reported the stock market rebounded 
yesterday due in large part to a dip in oil prices stemming from rumors 
that the Saudi Arabian and Iranian Governments agreed in principle to 
increase supply at the March 27 meeting.
  Look how dependent we have become on oil speculation from OPEC 
ministers. When these ministers mumble about supply increases, our 
economy signals relief. When they mention maintaining the quotas, or 
not increasing supply enough, economic indicators begin heading south.
  What this means to me is simple. It means OPEC has won. Its 18-month 
cutback in supply has succeeded in giving it significant leverage over 
the U.S. and world economies. Even if OPEC chooses to increase supply 
on March 27, which they in likelihood will do, the hard truth is that 
global inventories are so low that even a moderate increase will still 
allow the cartel to manipulate supply and increase prices at a moment's 
notice. They have us, quite simply, by the neck.
  We cannot allow our economy to become beholding to the decisions of 
OPEC ministers--plain and simple. My suggestion to the administration 
is this: We need to use the SPR as leverage. And we should make a 
promise to OPEC. We can make it privately or we can make it publicly. 
But we should tell them in no uncertain terms that unless they decide 
to increase production by 2 million barrels a day by March 27, we will 
use our reserve to make up the difference. Whether we make that promise 
publicly or privately, as I mentioned, is immaterial so long as they 
understand the consequences of squeezing supplies to the point of 
hurting our economy. And a comprehensive SPR-swaps policy, which means 
selling now and promising

[[Page S1371]]

to buy back later, makes good sense because the price will be lower 
later and we can replenish the reserve. That needs to be put in place 
now.
  Some have argued that we shouldn't use the reserve except for 
national emergencies. When oil is at $34 a barrel, when gas prices are 
headed towards $2 per gallon, when major companies in America lose 
dramatic parts of their value because of the price of oil, and when the 
economic expansion that has made this country smile from one coast to 
the other for so many years is in jeopardy, to me that is an emergency. 
If for some reason some in the administration have doubt about whether 
they have the legal ability to sell the reserve--I believe they do--we 
can easily in this body pass legislation that Senator Collins and I 
have sponsored which makes it clear that they do.

  No one is looking to go back to $10-per-barrel oil. But oil trading 
over $30 per barrel is clearly going to affect our economic growth and 
severely impact the global economy.
  We have a perfect tool to reduce the inordinate power of OPEC and 
protect our economy. That tool is the Strategic Petroleum Reserve. It 
is high time we used it.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Gorton). The clerk will call the roll.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. FITZGERALD. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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