[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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