[Congressional Record (Bound Edition), Volume 150 (2004), Part 4]
[Senate]
[Pages 5467-5472]
[From the U.S. 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

[[Page 5468]]

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 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

[[Page 5469]]

     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.
  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.

[[Page 5470]]

  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.
       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

[[Page 5471]]

     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 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.

[[Page 5472]]

         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 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.

                          ____________________