[Congressional Record Volume 150, Number 45 (Friday, April 2, 2004)]
[Senate]
[Pages S3600-S3601]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STRATEGIC PETROLEUM RESERVE
Mr. LEVIN. Mr. President, earlier this week the OPEC cartel announced
it would reduce oil production by 1 million barrels of oil per day
starting April 1. This move is designed solely for one purpose: to keep
pushing up oil prices in the United States and other oil-consuming
countries.
Most energy experts say that given current inventory levels in the
United States and elsewhere and current consumption rates, OPEC's cuts
mean that gasoline prices will likely stay high, hurting American
families; jet fuel prices will stay high, hurting our airlines; and
diesel fuel prices will stay high, hurting our truckers, manufacturers,
and farmers.
As OPEC was planning this price hike, what was the response of the
administration? Just a few days before, the Secretary of Energy stated
he was not about to go begging for oil.
One step we should take immediately to counteract high prices and
OPEC's action is to stop filling our Strategic Petroleum Reserve. This
month, the administration is going to put about 200,000 barrels per day
of oil into the Strategic Petroleum Reserve. If OPEC's cuts are
distributed equally among its customers, this is about how much the
OPEC cut will reduce U.S. supplies. Since the U.S. imports about 20
percent of OPEC's output and OPEC plans to cut production by about 1
million barrels per day, about 200,000 barrels per day will be the
reduction in the supply to the United States.
Holding off additional deposits into the Strategic Petroleum Reserve
would keep about as much oil on the U.S. oil market as OPEC is taking
off our market. One way to fight back is to cancel these additional
deposits which will otherwise go into the Strategic Petroleum Reserve,
which is already 93-percent filled.
Mr. President, 200,000 barrels per day is a lot of oil. It is as much
oil as is produced in several of our major oil-producing States. For
instance, Oklahoma produces about 180,000 barrels a day. It is about as
much as we import from Kuwait. Last year we imported about 205,000
barrels per day from Kuwait.
Over time, 100,000 to 200,000 barrels per day adds up to a
significant amount of oil. Over the course of the next year or so,
these daily fills will add up to about 50 million barrels of oil. In
other words, over the next year or so, the Department of Energy, if it
sticks to its plan to continue to fill the Strategic Petroleum Reserve
to 100 percent, the DOE will take about 50 million barrels of oil off
the market and put them into the Strategic Petroleum Reserve.
If we keep that oil in the market, in the private sector, we would
get both short-term and long-term benefits. The day after the Senate
passed the amendment which I offered with Senator Collins to cancel the
planned delivery of 50 million barrels of oil into the Strategic
Petroleum Reserve, prices on the New York and London crude oil
exchanges fell by more than $1, just on the news that the Senate had
acted, even before anyone knew whether the House would follow suit.
Prices rose back to their previous levels when the Department of Energy
and some key Members of Congress said that the DOE should keep putting
that oil into the Strategic Petroleum Reserve.
The market's reaction to the news that the Strategic Petroleum
Reserve deliveries might be canceled is good evidence of how the market
will react to the cancellation of those deliveries. We should listen to
what the market is telling us. Keeping 50 million barrels of oil on the
market rather than putting them into the reserve will enable our
private sector inventories to build back to normal levels. They have
not been at normal levels for some time now. They have been well-below
normal and recently fell to historic lows.
If we restore those private sector inventories, this will reduce
prices substantially, and most experts agree that absent some type of
additional supplies in the market, oil and gas prices are going to stay
very high.
I want to make it clear that we are not proposing removing oil from
the Strategic Petroleum Reserve at this time. What we are talking about
is simply to stop putting even more oil into the reserve which is
already 93 percent of capacity.
The administration says the daily addition is too small to make a
difference in the price of oil. This is wrong for two reasons.
First, the amount the DOE is putting into the reserve each day is a
lot of oil. Second, the administration's position ignores the long-term
effect of putting these barrels of oil into the Strategic Petroleum
Reserve--and this is the DOE's own staff I am going to quote. This is
what DOE's own staff said:
Essentially, if the reserve 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 three successive 6-month periods following the
DOE staff's warning.
The Department of Energy's own staff who operates the Strategic
Petroleum Reserve recommended against buying more oil for the Strategic
Petroleum Reserve in tight markets.
In the spring of 2002, as prices were rising and inventories in the
private sector were falling, this is what the Department of Energy
staff warned:
Commercial petroleum inventories are low, retail product
prices are high and economic growth is slow.
This is DOE staff's bottom line:
The Government should avoid acquiring oil for the Reserve
under these circumstances.
Commercial petroleum inventories are low,--
They are still at an all-time low.
retail product prices are high--
They are at an all-time high now.
and economic growth is slow.
And it does continue to be sluggish. This is what their bottom line
is:
The Government should avoid acquiring oil for the Reserve
under these circumstances.
The administration chose to ignore those warnings. The reserve
deliveries proceeded, and just as the DOE staff predicted, supplies
tightened and prices climbed.
The administration continues to ignore the advice of these experts at
the reserve, and American consumers are paying the price.
A wide variety of experts outside the Department of Energy has stated
that
[[Page S3601]]
filling the reserve during tight oil markets increases oil prices. This
January, Goldman Sachs, which is the largest crude oil trader in the
world, said the following:
Government storage builds will provide persistent support
to the markets--
meaning filling the reserve pushes prices up, and
Government increases in storage lowered commercially
available petroleum supplies.
Bill Greehey, who is the chief executive of Valero Energy, the
largest independent refiner in the United States, has criticized the
administration for filling the reserve when commercial inventories were
low, thereby preventing increases in the commercial inventories.
Last September, when oil prices were at $29 a barrel, Greehey
complained the reserve program was diverting oil from the marketplace.
Here is what he said:
If that was going into inventory, instead of the reserve,
you would not be having $29 oil, you'd be having $25 oil. So,
I think they've completely mismanaged the strategic reserve.
Now that is the chief executive of the largest independent refiner in
the United States.
One of the top energy economists in the country, Phil Verleger,
estimates the reserve program has added $8 to $10 to the price of a
barrel of oil.
Economist Larry Kudlow said:
Normally, in Wall Street parlance, you're supposed to buy
low and sell high, but in Strategic Petroleum Reserve
actions, we're buying higher and higher and that has really
helped keep oil prices high.
Now that is from a conservative economist.
In an article explaining why oil prices are so high, a recent issue
of the Economist reported the following:
Another factor . . . propping up oil prices may be what [a]
trader calls ``supply disruption risk.''
Here is what the Economist went on to say:
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 reserves.
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 nonbinding resolution this month calling on the Bush
administration to stop SPR purchases, but Spencer Abraham,
the Energy Secretary, has refused.
In January, the Petroleum Argus, an energy industry newsletter,
stated the following:
The act of building up strategic stocks diverts crude
supplies that would otherwise have entered the open market.
The natural time to do this is when supplies are ample,
commercial stocks are adequate and prices low. Yet the Bush
administration, contrary to this logic, is forging ahead with
plans to add [more oil] to the stockpile.
After the Senate passed our amendment that said we should hold off
further purchases, Todd Hultman, who is president of Dailyfutures.com,
a commodity research provider, was quoted as saying the amendment:
. . . makes good sense and is designed to make more crude
oil available at a time when unleaded gasoline prices have
been making new record highs.
Last summer, Dr. Leo Drollas, chief economist at the Centre for
Global Energy Studies, criticized the Strategic Petroleum Reserve
program:
They've continued filling the reserve, which is crazy,
putting the oil under the ground when it is needed in
refineries.
Now that is why the Senate, with support from both Republicans and
Democrats, recently approved an amendment, which I offered with Senator
Collins, to stop Strategic Petroleum Reserve shipments, sell the oil
that would have been placed in the reserve and use the money from those
sales for important homeland security programs.
Fifty-three House Members, 39 Republicans and 14 Democrats, recently
wrote the President requesting a suspension of SPR petroleum reserve
shipments. The House letter states the following:
Filling the SPR, without regard to crude oil prices and the
availability of supplies, drives oil prices higher and
ultimately hurts consumers.
The administration still chooses to ignore common sense and it adds
oil to the Strategic Petroleum Reserve, no matter how high the price or
how tight the supply of oil.
Even though this discussion is about suspending additional deposits
into the Strategic Petroleum Reserve when prices are high and private
and commercial inventories are low, I would like to comment on a
misimpression regarding what happened the last time the Strategic
Petroleum Reserve was actually used to release oil. Again, we are now
shifting the discussion from talking about not putting more oil to the
reserve to what happened last time we took oil out of the reserve. This
is what happened during the Clinton administration when 30 million
barrels were taken from the reserve and put on the private market. This
was in September of the year 2000. Here is what the Washington Post
recently stated:
The last time an administration tapped the Strategic
Petroleum Reserve, the impact on price was negligible. When
President Bill Clinton ordered the sale of 30 million barrels
of oil on September 22, 2000, the average price of regular
gas had climbed to more than $1.56. By October 24, when the
oil began to hit the market, prices had slipped one penny,
according to the Energy Department's Energy Information
Administration.
Well, that statement is highly misleading because it omits critical
information. Here is the full story: On September 22, 2000, with crude
oil prices at $37 a barrel, home heating oil stocks at historic lows
and winter around the corner, President Clinton ordered the release of
30 million barrels from the Strategic Petroleum Reserve. Within a few
days of the announcement of the release, crude oil prices had fallen by
$6 a barrel. Within a week, home heating oil prices fell by 10 cents
per gallon. Within 2 weeks, wholesale gasoline prices had fallen by 14
cents per gallon.
So what the statement omitted is what happened to oil and gas prices
immediately after the order for the release of that 30 million barrels
from the Strategic Petroleum Reserve. There was an immediate impact
downward on gasoline prices, wholesale prices for home heating oil, in
the amounts of 10 cents a gallon for home heating oil and 14 cents a
gallon for gasoline. So the statement that gasoline prices on October
24, a month later, were only a cent lower than on September 22 omits
the critical information that oil and gasoline prices fell
significantly immediately after the release but then rose later due to
unrelated events in the Middle East.
Two weeks after the release, crude oil prices were still $6 per
barrel lower than the prerelease prices and wholesale gasoline prices
were 14 cents per gallon lower. Only when a wave of violence hit the
Middle East during the third week after the release did gasoline prices
rise to their prerelease levels.
So the release of 30 million barrels of reserve oil during the
Clinton administration did have a significant, immediate effect on oil
and gas prices downward.
Just as taking oil out of the reserve can significantly affect
prices, putting oil into the reserve can have a significant effect as
well. That is what is going on now. The administration should listen to
its energy experts and the economists and stop adding oil to the
Strategic Petroleum Reserve which is already 93 percent full. The
result will be lower oil and gasoline prices, a welcome relief to
American consumers, manufacturers, and airlines.
Mr. President, I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Thomas). The clerk will call the roll.
The assistant journal clerk proceeded to call the roll.
Mr. McCONNELL. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Chafee). Without objection, it is so
ordered.
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