[Congressional Record Volume 150, Number 41 (Monday, March 29, 2004)]
[Senate]
[Pages S3283-S3288]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
OIL SUPPLY
Mr. LEVIN. Mr. President, last Thursday a press release from the
Department of Interior came across my desk that at first glance
appeared to be the announcement of an April fool's joke. The press
release stated beginning April 1, the Interior Department will deliver
about 115,000 barrels of oil per day to the Department of Energy for
the Strategic Petroleum Reserve. I thought this was an April fool's
prank because this is about the worst possible time for the
administration to be taking oil off the market for the Strategic
Petroleum Reserve.
Crude oil and gasoline prices are historic highs and inventory levels
are near historic lows. Consumers are paying record prices at the gas
pumps. Manufacturers and farmers and a whole lot of other folks are
paying high prices for diesel fuel. Our airlines face soaring fuel
costs and so does the trucking industry. Our economy, which has major
problems, will be weakened further by high energy prices.
To make the timing even worse, the Department of Interior plans to
begin its oil deliveries to the DOE on April 1, the same date the OPEC
cartel is scheduled to start cutting its oil production. The purpose
and effect of OPEC's cuts are to raise oil prices further. The effect
of the administration's stated plans to keep filling the Strategic
Petroleum Reserve regardless of the price of oil, if implemented, will
be the same, principally because tight supplies and private inventories
will become even tighter due to the administration's additional demands
for oil for the Strategic Petroleum Reserve.
Regrettably, the Interior Department's announcement is no April
fool's joke. To the contrary, it is another misstep in the
administration's illogical and counterproductive practice of putting
oil into the Strategic Petroleum Reserve, regardless of the price of
crude oil.
Over the past 2 years, this practice has pushed up oil prices with
minimal improvement to our overall energy or national security and with
great detriment to our economic security.
Let's just review what has happened with energy prices. Crude oil
prices have been steadily increasing over the past 2\1/2\ years. Last
week crude oil reached a 13-year high of over $38 per barrel. So far
this year, crude oil is averaging about $35 per barrel. In 2003, a
barrel of crude oil cost on average over $31. That was a record at that
point. Climbing crude oil prices have led to higher prices for refined
products, including gasoline, home heating oil, jet fuel, and diesel
fuel.
Today, as well as four times in the last 10 days or so, the price of
gasoline reached a record high. Nationally the average price of a
gallon of gasoline is now $1.75. In Michigan, the average price of a
gallon of unleaded is up to $1.78. There are fears prices could go over
$2 if there is even a small interruption in supply.
The DOE's Energy Information Administration, the EIA, projects prices
will rise on average to $1.83 per gallon
[[Page S3284]]
this spring, and that prices will remain at high levels throughout the
year, averaging nearly $1.70 per gallon over the course of the entire
year. These high oil and gasoline prices are hurting consumers and
businesses. The EIA recently stated the average consumer paid $200 more
for gasoline in 2003 than the previous year. Prices this year are
already a dime per gallon more than in 2003. Over the course of a year,
each 1-cent increase in the price of a gallon of gasoline takes $1
billion out of the pockets of American consumers.
Following the laws of supply and demand, the principal reason oil
prices are so high is the amount of crude oil in private sector
inventories in the United States is so low.
In fact, our private sector inventories are hovering around record
low levels. In January, crude oil inventories fell to levels lower than
at any time in the 28 years the Department of Energy has been tracking
those inventories.
Why are supplies so low? This administration's oil policies are
partly responsible. Since late 2001, the Department of Energy has taken
millions of barrels of oil off the market and put them into the
Strategic Petroleum Reserve.
In late 2001, the reserve held about 560 million barrels of oil.
Since then, day after day, for over 2 years, the Department of Energy
has added an average of about 100,000 barrels of oil per day to the
Strategic Petroleum Reserve without regard to the price of oil.
Today, the Strategic Petroleum Reserve holds nearly 650 million
barrels, or 93 percent of its capacity of 700 million barrels.
DOE plans to keep on adding oil to the Strategic Petroleum Reserve,
no matter what the price, no matter how dangerously low private sector
inventories are. In April, the DOE plans to add about 200,000 barrels
per day to the Strategic Petroleum Reserve, just as it has been doing
this month.
By taking oil off the market and pushing up prices when supplies were
tight and prices were high, filling the Strategic Petroleum Reserve has
decreased the amount of oil in private inventories. That is because
when current prices are high, companies with oil in inventory will draw
from those inventories to supply oil to their customers--including the
SPR--before they buy expensive new oil.
From April 2002 through the end of last year--a period in which the
oil markets were extremely tight, reflecting high prices and low
supplies--oil inventories in the private sector decreased by almost as
much as the petroleum reserve inventory increased. From April 2002 to
December 2003, the Department of Energy deposited about 78 million
barrels of oil in the petroleum reserve. During this same period, the
United States private sector inventories declined by about 61 million
barrels. So the 78 million barrels of oil that were deposited into the
petroleum reserve are shown by this red line in the last approximately
year and a half, the decline in the private inventories is shown by
this white line over the same period. So you can see from the chart
that the amount deposited in the reserve is almost the same--slightly
more--as the decline in private inventories. That means, despite
filling the reserve for almost 2 years, the total oil in inventory,
private and public reserve, in the United States during this period
increased by only 17 million barrels--under 2 percent.
Several studies have demonstrated that the decrease in U.S. private
inventories since April 2002 is directly related to filling of the
Strategic Petroleum Reserve. While there are other factors as well,
such as OPEC production limits and increased global demand for crude
oil, especially in China, the filling of the Strategic Petroleum
Reserve has been a major contributor to the decrease in private sector
inventories.
Goldman Sachs, one of the largest and most successful crude oil
traders in the world, reported the following on January 16th of this
year:
Large speculative positions, builds in Strategic Petroleum
Reserves, and low inventory coverage have contributed to
current price levels.
Goldman Sachs also stated:
Past government storage builds [build-ups] will provide
persistent support to the market
and that
current plans for the injection of 130,000 [barrels/day] of
royalty-in-kind barrels into the petroleum U.S. Strategic
Petroleum Reserve (SPR) between now and the end of September
. . . will likely provide even further support.
Here, the word ``support'' means keeping prices high.
In early 2002, the Department of Energy's own staff warned that
filling the Strategic Petroleum Reserve in a tight market would reduce
private sector inventories and raise prices and tried to persuade the
administration to postpone putting oil into the reserve so oil supplies
would be more plentiful.
In the spring of 2002, as prices were rising and inventories falling,
the Department of Energy's own petroleum reserve staff warned the
following:
Commercial inventories are low, retail prices are high, and
economic growth is slow. The Government should avoid
acquiring oil for the Reserve under these circumstances.
The administration chose to ignore those warnings. The reserve
deliveries proceeded. As the DOE staff predicted, oil supplies
tightened and prices climbed.
Last week, the Secretary of Energy repeated the administration's
position that it would not suspend shipments of oil into the Strategic
Petroleum Reserve, despite the high prices and low private inventories
of oil. The Secretary rejected criticism of the Energy Department's
position by claiming that the amount of oil placed in the reserve is
too small to make any difference in the price of oil.
But in 2002, the Department of Energy's own staff refuted that very
claim. The DOE Strategic Petroleum Reserve staff explained how taking
these barrels off the market for an extended period of time would
result in a large decrease to the overall supply of oil on the market.
This is the DOE staff warning, which was ignored by the DOE and the
administration:
If we look at the Strategic Petroleum Reserve in the
perspective of daily supply and demand, the SPR fill rates
are inconsequential. The fill rate is 100,000 to 170,000
barrels per day compared to world production and consumption
of 75 million barrels per day. However, when OPEC countries
are determined to maintain discipline in their export quotas,
the cumulative impact of filling the SPR becomes more
significant when compared to U.S. and Atlantic basin
inventories. Essentially, if the SPR inventory grows, and
OPEC does not accommodate that growth by exporting more oil,
the increase comes at the expense of commercial inventories.
Most analysts agree that oil prices are directly correlated
with inventories, and a drop of 20 million barrels over a 6-
month period can substantially increase prices.
In fact, commercial inventories did fall, on average, by 20 million
barrels in each of the 3 successive 6-month periods. So what the DOE
expert staff said is exactly what has come to pass.
``Most analysts agree,'' they said, ``that oil prices are directly
correlated with inventories, and a drop of 20 million barrels over a 6-
month period can substantially increase prices.''
The Strategic Petroleum Reserve holds by far the largest strategic
oil reserves in the world. In contrast, U.S. private sector oil
inventories have fallen well below normal levels. Private sector
inventories of gasoline are also well below average.
In an article explaining why oil prices are so high, this week's
edition of The Economist reports the following:
Another fact . . . propping up oil prices may be what [a]
trader calls ``supply-disruption risk.''
And then The Economist goes on as follows:
These worries have, in part, been fueled by a most
unexpected source: the American Government. Despite the high
prices, American officials continue to buy oil on the open
market to fill their country's Strategic Petroleum Reserve.
When prices are high, why buy, you might ask, and thereby
keep them up? The Senate has asked that question as well. It
passed a non-binding resolution this month calling on the
Bush administration to stop SPR purchases; but Spencer
Abraham, the Energy Secretary, has refused.
Mr. President, I hope the Energy Secretary and this administration
will reconsider that refusal because the day after the Senate adopted
our amendment I cosponsored with Senator Collins to cancel the planned
shipments of 53 million barrels to the SPR, oil prices in New York and
London fell by $1 per barrel on the news that this oil might not be
placed in the Strategic Petroleum Reserve. But after the Department of
Energy and key Members of Congress announced opposition to our
amendment, even though it was adopted in the Senate, oil prices went
right back up.
[[Page S3285]]
This real-world price change shows that the cancellation of the
currently planned shipments to the Strategic Petroleum Reserve would
provide some immediate relief from high oil and gasoline prices and
also provide long-term relief, as the additional oil supplies would
enable inventories to be built back up to normal levels.
In his testimony before the Senate Armed Services Committee last
week, the Secretary of Energy cited ``national security'' as the
rationale for continuing to fill the SPR despite high oil prices and
low supplies. This rationale is unpersuasive for two reasons.
First, the 50 million barrels of oil that the administration plans to
put into the SPR over the next year could be more productively used to
replenish private sector inventories. Putting this oil into the SPR
will raise our governmental inventories from 650 to 700 million
barrels, an increase of about 8 percent; whereas keeping it on the
market could boost our private inventories from 290 million barrels to
340 million barrels, an increase of about 17 percent. We, therefore,
can get more bang for our buck--or, in this instance, bang for our
barrel--by keeping this oil on the market.
Typically, a variety of interruptions in oil supplies can occur in
the commercial marketplace. These disruptions may be caused by bad
weather, political unrest, or mechanical failure in the actual
production of oil. Although any particular disruption may not be
foreseeable, based on past history it can be predicted, in general,
that some such disruption will occur sooner or later. Because our
private inventories are so low, those inventories will not be available
to cover any such disruptions.
Since the SPR was established over a quarter century ago, we have
never needed to release more than 30 million barrels from the SPR at
any one time. At the outbreak of the first gulf war, in early 1991, we
released 30 million barrels. In the fall of 2000, the last time we
released oil from the SPR, we released around 30 million barrels. Even
after we lost all oil production in Iraq last year, this administration
did not release any oil from the SPR. It, therefore, appears, for the
time being, that holding the SPR at the current level of 650 million
barrels, which is 93 percent of capacity, would be sufficient security
to cover events that are reasonably foreseeable.
Because current inventory levels in the private sector may be
inadequate to cover minor supply disruptions, in the event of such a
disruption the price of oil would likely spike to well over $40 per
barrel, gasoline prices would jump to well over $2 per gallon, and we
might even have to tap into the SPR. The way to avoid this painful
scenario is to raise private sector inventories by keeping millions of
barrels of oil on the market rather than putting them into the SPR. It
does not make sense to increase our ability to respond to the most
unlikely events at the expense of our ability to respond to the more
certain ones.
Adding more oil to the SPR will increase our energy security only
slightly while decreasing our economic security significantly. We
cannot measure our national security solely by the number of barrels of
oil in the SPR. Our economic well-being is also critical to our
national security. In deciding whether or not to put oil into the SPR,
the administration should adopt a broader view of what is important to
our national security.
Affordable gasoline for American consumers is important to our
economic and national security. Affordable jet fuel and the health of
our airline industry is important to our economic and national
security. Affordable diesel fuel and the health of our manufacturing,
trucking, chemical, and agricultural industries is important to our
economic and national security. When oil, gasoline, jet fuel, and
diesel fuel prices are at or near record high levels, we should
consider the importance of increasing the supply of oil to these
industries as well as to the SPR program.
This real-world price change shows that cancellation of the currently
planned shipments to the SPR would provide immediate relief in the oil
and gasoline markets, and also provide long-term relief as the
additional oil supplies would enable inventories to be built back to
normal levels.
It is bad enough that the Department of Energy has refused to suspend
SPR deposits. To make matters worse, the Department of the Interior has
now announced that it too will take even more barrels off the market
starting April 1.
Currently, the administration plans to remove 5.6 million barrels
from the market and put them in the SPR during the month of April--
about 190,000 barrels per day. The latest announcement means that,
beginning April 1, the administration will be taking even more
barrels--for a total between 200,000 and 300,000 barrels per day--of
oil off the market.
How much oil is 200,000-300,000 barrels per day? A lot. It is as much
oil as we import from many countries, or as much as we get domestically
from major oil-producing states. In December 2003, for example, we
imported 211,000 barrels per day from Kuwait. In the same month, the
State of Louisiana produced 244,000 barrels daily. Oklahoma produced
about 180,000 barrels a day.
Moreover, by taking more oil off the market for the SPR when prices
are high, the administration is needlessly increasing the cost of the
SPR program for the taxpayers. In effect, the taxpayers will be paying
over $35 per barrel for this oil for the SPR. By canceling these
expensive deliveries, we could use the money obtained from the sale of
this oil for our urgent homeland security needs. Indeed, this is just
what the Levin-Collins amendment would do.
The administration sometimes claims that if we suspend SPR deliveries
to increase supplies, OPEC might reduce production to counter our
efforts. This is not a very good reason for not doing anything to
improve our situation. To begin with, we shouldn't avoid doing
something that makes sense for our national interests because we're
afraid that OPEC might respond by taking action adverse to those
interests. We must determine our own security, and not act in fear of
OPEC. If they act negatively to us, we should have a response ready.
Second, OPEC has not threatened to take any such action. The
administration shouldn't project actions that OPEC hasn't even hinted
at.
In fact, an article from last Friday's Oil Daily indicates that the
effect of the Senate Budget Resolution amendment to postpone SPR
deliveries is having a positive effect on OPEC--that in the wake of the
passage of our amendment some OPEC members ``are doubly keen to
reassure major consumers that they are happy to meet any shortfall [in
supply].''
Finally, the same argument could be made against any proposal to
increase our domestic oil supplies. If we accepted this argument, there
would be no point in us trying to increase supplies in any manner
whatsoever. It is always possible that OPEC will counter our measures
to increase our energy supplies, but we cannot be paralyzed into
inaction by fear of what OPEC might do.
I support filling the SPR, but not at any price. It is time for the
administration to consider the effect of filling the SPR on our
economic security. It is time for the administration to protect
American consumers and businesses rather than just the SPR program. It
is time to count jobs and growth, not only barrels of oil. It's time to
stop filling the SPR.
I ask unanimous consent that the Department of the Interior press
release regarding the reservation of oil for the SPR program, a recent
article from The Economist on high oil prices, an article from last
Friday's Oil Daily, and a bipartisan letter to the President from 53
House members urging the suspension of shipments to the SPR be printed
in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Department of the Interior, Minerals Management Service,
Office of Public Affairs, Mar. 24, 2004]
Strategic Petroleum Reserve Exchange Contracts Awarded; MMS, Wyoming
Team up on RIK Sale
Three major oil companies have been awarded contracts by
the Minerals Management Service (MMS) for the exchange of an
estimated 100,405 barrels per day of Gulf of Mexico Royalty-
in-kind (RIK) crude oil to support the national Strategic
Petroleum Reserve Fill Initiative unveiled by President
George W. Bush in November 2001.
[[Page S3286]]
With these contracts, MMS will take its oil royalties in-
kind (in the form of product), rather than in value (cash),
from offshore federal lease operators and deliver it to
onshore oil market centers where the Department of Energy
(DOE) will take custody of the oil. The DOE, in turn, will
exchange the RIK oil for oil of suitable quality that can be
delivered to Strategic Petroleum Reserve storage sites
located in Texas and Louisiana.
The RIK program provides a deliberate and cost-effective
means to continue filling the nation's Strategic Petroleum
Reserve in support of national objectives for energy security
and to mitigate potential supply disruptions.
Contracts in the latest sale were awarded to ChevronTexaco,
Shell Trading and ExxonMobil. Delivery on the six-month
contracts is scheduled to begin April 1, 2004. The oil will
be delivered from more than 100 facility metering points in
the gulf of Mexico.
The MMS RIK Program Office will also ship an additional
12,135 barrels per day of royalty crude oil directly to DOE
at onshore market centers, with one producer transporting an
additional 2,700 barrels per day directly to the DOE. That
translates to a total of approximately 115,000 barrels per
day of wellhead oil being committed to the Strategic
Petroleum Reserve Fill Initiative. To date, approximately 646
million barrels of oil have been added toward the approximate
700 million barrel capacity of the Strategic Petroleum
Reserve.
joint wyoming sale
The Minerals Management Service also announced that it has
again teamed with the State of Wyoming for the sale of
royalty crude oil produced in Wyoming. The February sale was
the 12th in a series of joint sales dating back to 1998 when
the State of Wyoming and the MMS first entered into the
Wyoming Oil Pilot Program.
Three firms were awarded contracts for approximately 1,300
barrels per day of both Federal and State sweet and general
sour production. Winning bidders were Teppco, Nexen and
Tesoro Refining. Delivery is scheduled to begin April 1,
2004, and continue through Sept. 30, 2004.
The Minerals Management Service is the federal bureau in
the U.S. Department of the Interior that manages the nation's
oil, natural gas and other mineral resources on the Outer
Continental Shelf in federal offshore waters. The bureau also
collects, accounts for, and disburses mineral revenues from
Federal and American Indian lands. MMS disbursed more than $8
billion in 2003 and more than $135 billion since it was
created in 1982. Nearly $1 billion from those revenues go
into the Land and Water Conservation Fund annually for the
acquisition and development of state and federal park and
recreation lands.
____
[From the Economist, Mar. 27, 2004]
A Burning Question; Oil
Why are oil prices so high?
Many people have been wondering why oil has become so
costly. Its spot price has been close to $40 a barrel; one
year forward, it fetches well over $30; and this week petrol
prices hit record highs in the United States. Weekly,
analysts have been tweaking their forecasts upwards.
The answer may come as a surprise. The usual culprit is the
Organisation of Petroleum Exporting Countries, the cartel
that tries to manipulate prices by adjusting agreed output
quotas. In February OPEC shocked the markets by announcing
that its members were to slash their ``cheating'' on official
quotas by 1.5m barrels per day (bpd); the quotas themselves
were to be trimmed by another 1m bpd at the beginning of
April.
However, industry experts say that OPEC countries have
hardly cut output at all in recent weeks. So freely are they
still cheating that only Saudi Arabia, the kingpin of the
cartel, has much spare capacity left. What is more, OPEC
ministers might not cut their quotas after all. Some are
wavering, and the oil might keep gushing. The ministers are
due to meet in Vienna on March 31st.
If OPEC is not turning off the spigot, what explains the
run-up in prices? One reason is surely demand: the strongly
growing economies of America and China are guzzling more oil.
If this goes on, OPEC's capacity constraints might bite.
However, Algeria's oil minister, Chakib Khelil, thinks
speculation is a more likely answer. He wants OPEC to cut
output on April 1st for fear that the price might drop
suddenly--by at least $7, he thinks.
Such talk is common from OPEC ministers. Usually it is
self-serving nonsense, intended to deflect criticism of the
cartel. This time there may be more to it. One reason to
believe it comes from energy traders. The big trading firms
typically deal with both ``commercial'' transactions--hedging
ploys by firms such as airlines--and ``non-commercial'' ones
by financial speculators such as hedge funds. Richard
Schaeffer of ABN Amro, a Dutch bank with a big presence on
the New York Mercantile Exchange (NYMEX), reports that the
amount of speculation in oil is ``more than I`ve seen in a
very long time.''
What is more, despite some sell-offs early this week, there
have clearly been some big bets on high oil prices. Non-
commercial net long positions in futures markets are at an
unprecedented level (see chart). There is, says one trader, a
lot of ``paper froth'' supporting oil prices. In its latest
oil report, the International Energy Agency said that ``the
funds are having a field day''.
But why exactly have speculators piled into the oil market
now? One reason may be uncertainty or disappointment with
returns on financial assets. John Shapiro of Morgan Stanley
believes that hedge funds, endowments and other investors
have been drawn to the oil market by the lack of
alternatives. He points to low interest rates and, until
recently, the relatively poor performance of the stockmarket.
Another factor attracting punters and propping up oil
prices may be what Eric Bolling, an independent trader on the
NYMEX, calls ``supply-disruption risk.'' Political troubles
in Venezuela, Nigeria and Iraq have long worried those who
fear an interruption of exports. A bigger and newer aspect of
this risk, however, is the fear of terrorism that might be
targeted at oil infrastucture.
These worries have, in part, been fuelled by a most
unexpected source: the American government. Despite the high
prices, American officials continue to buy oil on the open
market to fill their country's strategic petroleum reserves
(SPRs). Why buy, you might ask, when prices are high, and
thereby keep them up? The Senate has asked that question as
well. It passed a non-binding resolution this month calling
on the Bush administration to stop SPR purchases; but Spencer
Abraham, the energy secretary, has refused.
The administration's persistence, coupled with increased
strategic purchases by other governments, has fuelled
suspicions that officials might have some intelligence about
terrorist threats to oil infrastructure. The upshot is that
concerns about disruptions to supply, by OPEC or by
terrorists, now add up to what Mr. Schaeffer calls an
``unprecedented premium'' on the price of oil. He observes
that in the past, prices have spiked on worries that supply
might be interrupted, but have then fallen back quickly. This
time the premium seems to be lingering.
Some experts worry that the longer prices stay high because
of this speculative frenzy, the harder they will fall.
Perhaps all that can be said is that reading the oil market
is as difficult today as it has been for a long time: strong
demand, political unrest and OPEC discipline could drive the
price higher, and encourage still more speculative buying; a
slowdown in America or indiscipline in the cartel could
remove a lot of froth in a hurry. Even if the price does
drop, however, it need not collapse, because thanks to OPEC
the oil market is like no other.
If speculators head for the door, Saudi Arabia, which has
been called the central bank of the oil world, has one card
to play that even the Fed does not. Ali Naimi, the Saudi oil
minister, can announce that he will slash his country's
output at once. Speculators will surely take notice, for he
has a proven record of propping up prices. That is the sort
of influence over markets that even Alan Greenspan must envy.
____
[From the Oil Daily, Mar. 26, 2004]
Price Slide May Help Opec Reach Consensus
(By Karen Matusic, Manimoli Dinesh, and Paul Merolli)
Washington.--The first signs that oil market bears may be
emerging from a long hibernation might be a blessing in
disguise for Opec ministers meeting Wednesday in Vienna.
After fretting for weeks about their inability to do
anything to stem a runaway oil market and disagreeing
publicly about whether to implement a lower production
ceiling on Apr. 1, Opec ministers may find it a bit easier to
reach consensus, ironically because of a sharp decline in
prices. Prompt futures on the New York Mercantile Exchange
(Nymex) fell from a high of $38.50 per barrel on Mar. 19 to a
low of $34.75/bbl on Mar. 26 in reaction to the fifth crude
stock build in the US during the past six weeks.
The confusion is evident in public statements from Opec
ministers--not to mention oil analysts, who have repeatedly
raised their price forecasts. Some ministers insist that Opec
will cut the production ceiling to 23.5 million barrels per
day on Apr. 1 as planned, even though insiders admit the
group has yet to make good on earlier promises to mop up
excess supply; others say they may consider a delay.
``The price fall will strengthen the hand of those [Opec]
members who want to see a [23.5 million b/d] ceiling come
into play,'' an Opec delegate tells Oil Daily. ``Before that,
there was some pressure from consumers for us to do
something, but we really have been doing all we could. Those
prices were really too high. Now it seems as they are falling
and will soon be at reasonable levels.''
Together, the 11 Opec members are now producing about 28
million b/d. That would leave the 10 quota-bound members, who
exclude Iraq, having to remove more than 2 million b/d from
markets in the next few days to comply with the new ceiling.
Come Mar. 31, one possibility might be to announce that the
23.5 million b/d ceiling is coming into effect while knowing
that no member is likely to adhere to the new limits. Already
there are signs that Saudi Arabia is increasing supplies to
the US based on higher than usual tanker fixtures for April
and early May.
``Confusion means they will do nothing,'' says PFC Energy
analyst Roger Diwan. ``Prices are coming down, and it makes
it easier for them to reinforce quota discipline. Now it is a
matter of how long it takes them to trim down.''
Oil traders are hedging their bets ahead of the Vienna
talks, mainly because they have
[[Page S3287]]
been caught off-guard twice since September, by surprise
announcements that Opec was cutting its production ceiling
just minutes after ministers entered their meeting room
insisting that a rollover was a done deal.
Though some observers question Opec's credibility after
failing to implement promised production cuts, the Saudi-led
initiative to convince big market speculators that Opec would
do all it could to maximize oil prices was successful in that
it seems to have thwarted an expected second quarter price
plunge. While prices may continue to fall, they will do so
from a much higher base.
``Stocks are tight, and it will take time to build,'' PFC's
Diwan says. ``It looks like OPEC will bridge the second
quarter. I do not think they mind looking as if they lack
credibility at $35 [per barrel].''
The political heat on OPEC to open the taps has been
rising, especially in the U.S. where motorists are paying
record-high prices for gasoline, well ahead of peak summer
driving season. Slammed by Democrats for record high prices
and ``failed'' energy policies, the Bush administration is
prodding OPEC to increase production.
President Bush, who in the 2000 election campaign mocked
the Clinton administration for what Republicans called ``tin-
cup diplomacy'' in its dealings with oil producers, now seems
happy to admit he is prodding OPEC to increase production.
Bush's Chief of Staff Andrew Card said in a television
interview on Thursday that the administration wants OPEC to
open the taps while Energy Secretary Spencer Abraham
confesses he is in regular contact with OPEC, something he
had downplayed in the past.
``There's been on going discussions with OPEC, but we
prefer to keep them private,'' said a Department of Energy
spokeswoman, declining to offer further details,
OPEC insiders retort privately that the sizzling prices are
not being caused by shortages of OPEC oil--but by tight U.S.
gasoline supplies, geopolitical concerns and big overbought
positions built up by speculators. Nonetheless, more moderate
OPEC members are doubly keen to reassure major consumers that
they are happy to meet any shortfall after the Senate voted
to divert some 53 million bbl of crude, originally destined
for the Strategic Petroleum Reserve (SPR), to the spot
market.
That set alarm bells ringing among some OPEC members, aware
that the release of emergency reserves is the only real
leverage that consumers have over producers. Bill Greehey,
the outspoken chairman and chief executive of U.S. refiner
Valero, said the U.S. government should use the SPR to
counterbalance OPEC, releasing or buying crude to offset
OPEC's moves.
``There is no need to release the SPR because there is no
shortage of crude--and we will make sure of that,'' an OPEC
official tells Oil Daily.
The measure requires support from the House of
Representatives to become law, and the Bush administration
has made it clear that America's emergency stockpile should
only be used in emergencies--not to cool off prices. It
underlined that point last week when it awarded new contracts
to fill the SPR. In a dig at Abraham, Democrats also released
congressional records from 2000 revealing that Abraham, then
a senator, urged a release of SPR oil to moderate prices.
____
House of Representatives,
Washington, DC, March 22, 2004.
Hon. George W. Bush,
The White House, Pennsylvania Avenue, N.W., Washington, D.C.
Dear Mr. President: We are writing to urge that you suspend
shipments of oil to the Strategic Petroleum Reserve (SPR) and
allow more oil to remain on the market and available to
consumers when supplies are tight. We hear from our
constituencies daily about the financial strain of increasing
gasoline prices.
We are urging you to call upon the Department of Energy
(DOE) to review and revert back to its previous policy of
filling the SPR when crude oil prices are relatively low and
deferring oil deliveries when prices are relatively high.
Filling the SPR, without regard to crude oil prices and the
availability of supplies, drives oil prices higher and
ultimately hurts consumers.
In addition, we are concerned about missed opportunities
for saving taxpayers' money. Filling the SPR regardless of
oil prices increases taxpayer costs. Prior to 2002, DOE
granted oil company requests to defer scheduled oil
deliveries to the SPR when oil prices were high, in return
for deposits of extra oil at a later date. These deferrals
save taxpayers money and add extra barrels of oil to the SPR.
We urge the DOE to study the development of procedures to
assure that the SPR is filled consistent with the objective
of minimizing acquisition costs--or revenue foregone when the
oil is acquired under the royalty-in-kind (RIK) program--and
consistent with maximizing domestic supply. We urge the
Administration to reevaluate the practice of diversion of RIK
and other oil to the SPR so that it will be opportunely timed
so as to not exacerbate crude oil price increases.
We recommend you restore market-based criteria for granting
deferrals by urging the DOE to restore its SPR business
procedures allowing deferrals of oil deliveries to the SPR
when crude oil prices are high or commercial crude oil
supplies are tight.
Again, we urge you to take these recommendations under
consideration and to suspend shipments to the SPR until crude
oil supplies increase and prices decrease.
Sincerely,
Robert W. Goodlatte; Walter B. Jones; Gil Gutknecht; Jo
Ann Emerson; Jack Kingston; John Shadegg; Spencer
Bachus; Mike Rogers; David R. Obey; James P. Moran.
Barbara Cubin; Phil English; C.A. ``Dutch''
Ruppersberger; Nancy L. Johnson; Bart Gordon; Eliot L.
Engel; Kenneth R. ``Ken'' Lucas; Tom W. Osborne; James
C. Greenwood; Eric I. Cantor.
Sue Wilkins Myrick; Dave Camp; John T. Doolittle; James
P. McGovern; Lee Terry; John J. Duncan, Jr.; Mike
Rogers; Don Sherwood; Bill Shuster; John Boozman.
Howard P. ``Buck'' McKeon; Steve King; Frederick ``Rick''
Boucher; Steve Chabot; Mike McIntyre; Roscoe G.
Bartlett; Dennis ``Denny'' Rehberg; Jo Ann S. Davis;
Virgil H. Goode, Jr.; Ellen O. Tauscher.
Fred Upton; Howard Coble; Timothy V. Johnson; J. Randy
Forbes; Collin C. Peterson; Joe Wilson; Mark A. Foley;
Ander Crenshaw; Roy Blunt; Cass Ballenger; Gerald C.
``Jerry'' Weller.
Mr. LEVIN. Mr. President, the Senate has spoken. The administration
should listen to common sense and to what the market says, that when
supply in the private sector goes down, prices go up, and the Strategic
Petroleum Reserve fills have made a major contribution to high oil and
gasoline prices in this country. It adds little to our energy or
economic security for the administration to pursue the course it is on.
I hope it will reconsider the SPR deposits.
I yield the floor.
The PRESIDING OFFICER. The Senator from Minnesota.
Mr. DAYTON. Mr. President, I certainly agree with my colleague, the
Senator from Michigan, about the need to deal with our present
situation which affects my State, as well as everyone else.
I also want to point out to my colleagues that the ultimate solution
to our oil dependency needs is not going to come from more oil, more
tax breaks for oil, more searching for oil, or extracting oil from
environmentally sensitive areas. It is going to be in developing viable
alternatives to oil, one of which is right in front of us, available to
us now, and is barely being tapped by this Nation. And that is ethanol.
I have a Ford Explorer I drive all over Minnesota on a fuel called E-
85--85-percent ethanol, 15-percent regular gasoline. The engine is
produced by the manufacturer with a very slight modification. Last
summer in southern Minnesota, E-85 fuel was 22 cents a gallon less than
regular unleaded. I have not checked in the last couple of weeks, but
given the price of gasoline, I suspect it is even less expensive now.
Just imagine if we were to take half or more of the $115 billion that
we spend every year to import foreign oil--over half of all the oil we
consume--and instead of spending it overseas, we were to put it in the
pockets of American farmers, who then would spend their dollars in
their local communities. Those dollars would multiply, and we would
fuel an economic resurgence of rural America far greater than any
Government program could possibly devise. It is a cleaner burning fuel,
so we would improve the quality of our environment. We would reduce our
dependency on foreign oil. We would raise the price of commodities such
as corn and soybeans for soy diesel and some of the other agricultural
products, so farmers could make a profit in the marketplace at those
higher prices rather than have to be subsidized by the American
taxpayer. It is basically a policy grand slam, and yet in this country
right now less than 2 percent of the gasoline supply consumed is
ethanol.
In Minnesota, my State, 7 or 8 years ago the legislature passed, with
much controversy, a mandate that required that every gallon of gasoline
sold in our State contain 10-percent ethanol. Prices have been slightly
lower than those States nearby which do not have that requirement. The
fuel supplies have been consistent.
As I said earlier, that only touches the surface of what is possible
for ethanol as a substitute fuel for gasoline. Yet, Minnesota, despite
all those gains and no difficulties, is still the only State in the
Nation that has a 10-percent ethanol mandate.
We can fill up reserves, and we can try to bring in more. We can
jawbone the Saudis, and we will keep paying
[[Page S3288]]
through the nose regardless until--and only until--we shift our use of
fuels from what we are depending on now to what we can use or must use
for the future.
Here for the first time in my public career--and I was commissioner
of energy and economic development for Minnesota 20 years ago and
served in the Governor's office in Minnesota almost a decade before
then and worked on energy policy. In the span of those 30 years, this
is the first time I have seen a real opportunity that every American
can in their vehicle be consuming a fraction of the gasoline they are
using now, and we do not have any interest in pursuing it.
Senator Daschle and Senator Grassley, through their efforts, have put
and kept some energy measures in the Energy bill which is now stymied.
Senator Grassley has done a terrific service to the ethanol-production
States wherein the current transportation bill passed by the Senate
takes away that penalty for using ethanol that is in the formula for
the highway trust fund.
Even with those measures, we are looking at barely doubling the
increase of ethanol in consumption nationwide, so it would be less than
4 percent in a decade. Again, Minnesota has been at 10 percent for the
last 8 years.
When those prices keep going up and staying up, I want my colleagues
to keep in mind we have an alternative. We have an opportunity to make
a significant and immediate transition. It will take a few years, but
it is right there. But we have to get beyond where we are today.
____________________