Senators Question Administration Plan to Fill Strategic Petroleum Reserve
Department's decision will drive record oil prices even higher
On the day that the price of oil reached an all-time high of $89.55 per barrel, seven U.S. Senators questioned the Administration's decision to reduce oil supplies by diverting millions of barrels of oil to the Strategic Petroleum Reserve.
"This action sends a message to the market place that the Administration is comfortable with current price levels," wrote U.S. Senators Ron Wyden (D-OR), Carl Levin (D-MI), Jeff Bingaman (D-NM), Jack Reed (D-RI), Claire McCaskill (D-MO) and Byron Dorgan (D-ND) in a letter addressed to the U.S. Secretary of Energy, Samuel Bodman. "The high price for crude oil has led to record prices for heating oil as well as high prices for all other petroleum products, including gasoline, diesel fuel, and jet fuel."
The letter goes on to reference the Energy Policy Act of 2005, in which Congress directed the Department of Energy to develop criteria for when the SPR would be filled, with a specific requirement that the Department minimize costs and avoid adversely affecting current and futures prices, supplies, and inventories of oil. The Senators conclude: "We are concerned that the Department's decision to fill the SPR under current market conditions is inconsistent with these statutory requirements. We therefore respectfully request that you immediately suspend and defer filling the SPR."
The full text of the letter to Secretary Bodman is below:
October 18, 2007
The Honorable Samuel W. Bodman
U.S. Department of Energy
1000 Independence Ave, SW
Washington, DC 20585
Dear Mr. Secretary,
We are writing to express our extreme concern at the Department of Energy's continued deposits of oil into the Strategic Petroleum Reserve (SPR) despite record high crude oil prices and to respectfully request that you immediately postpone further deliveries.
The Department's insistence on further reducing commercial oil supplies at a time of tight supply and record prices has exacerbated the current oil price spike, now nearing $90 per barrel. The high price for crude oil has led to record prices for heating oil as well as high prices for all other petroleum products, including gasoline, diesel fuel, and jet fuel. The dramatic rise in crude oil prices also has pushed up the price of natural gas. These commodities are vital to millions of American families and businesses and continued price increases threaten our national well-being. The Department should be taking prompt action to alleviate the current crisis in energy prices, rather than reducing oil supplies just when they are needed most.
The Energy Department in September deposited 2.6 million barrels of oil into the SPR and reportedly plans to remove another 6 million barrels from the market and place them into the SPR over the next few months. This action sends a message to the market place that the Administration is comfortable with current price levels, and can only add to U.S. crude oil prices and the prices of related commodities. In addition, last week the Department issued another solicitation for additional deposits of 13 million barrels into the SPR beginning next February. Unless the Department changes the manner in which it manages this program, the removal of another 13 million barrels of oil from the market could fuel further increases in oil prices in the spring and summer of 2008.
The Department's current policy is not only bad for consumers, but it's also bad for taxpayers. Based on the Department's own forecasting of crude oil prices and on current futures prices, a deferral of SPR deliveries for 12 months would allow the Department to acquire oil at a discount of more than $10 per barrel compared to today's prices. As DOE plans to add several million barrels to the SPR under the current schedule, the total savings from one-year deferrals would save the taxpayers tens of millions of dollars. These funds could be used to develop alternative technologies that would genuinely make our Nation secure from energy disruptions, such as hydrogen, biomass, solar, wind, geothermal, hydropower, vehicle energy efficiency, building energy efficiency, industrial efficiency and weatherization.
In the Energy Policy Act of 2005, Congress directed the Department to develop criteria for when the SPR would be filled and specifically required the Department to minimize costs, including foregone revenue from Royalty-in-Kind oil and to avoid adversely affecting current and futures prices, supplies, and inventories of oil. As the legislative history of this provision shows, Congress intended for the Department to use a market-based approach to determining when to fill the SPR. We are concerned that the Department's decision to fill the SPR under current market conditions is inconsistent with these statutory requirements. We therefore respectfully request that you immediately suspend and defer filling the SPR.
Ron Wyden (D-OR)
Carl Levin (D-MI)
Jeff Bingaman (D-NM)
Jack Reed (D-RI)
Claire McCaskill (D-MO)
Byron Dorgan (D-ND)
John Kerry (D-MA)