Yarmuth called for measure that halts purchases for Strategic Petroleum Reserve
Eight weeks after Congressman John Yarmuth (KY-3) called on the President to lower gas prices by suspending shipments of oil to the Strategic Petroleum Reserve (SPR), the House of Representatives and Senate each approved a bill-- which the Louisville lawmaker actively supported-- that will halt SPR shipments through the end of the year.
"It's disappointing that the President refused to take this action, which will provide some immediate relief to millions of Americans paying far, far too much for a gallon of gas," Congressman Yarmuth said. "Louisvillians work too hard to keep getting gouged at the pump, and I will continue to fight for measures like these that will ease the burden."
Despite containing enough oil to meet our national security needs, the United States continues to fill the SPR, taking 70,000 barrels of oil off the market each day. Leading economist, including those at Goldman Sachs and LPL Financial, estimate that this action could reduce gas prices by up to 25 cents a gallon - a critical first step for America's families, businesses, and the economy.
The SPR has been tapped or temporarily suspended before by President Bush, President Clinton, and the first President Bush. In 2000, after such action, the price of oil dropped by one-third - from $30 to $20 per barrel. In April 2006, President Bush understood the real impact suspending oil purchases and acquisitions for the SPR would have for consumers -
"One immediate way we can signal to people we're serious about increasing supply is to stop making purchases or deposits to the Strategic Petroleum Reserve for a short period of time. I've directed the Department of Energy to defer filling the reserve this summer. Our strategic reserve is sufficiently large enough to guard against any major supply disruption over the next few months. So by deferring deposits until the fall, we'll leave a little more oil on the market. Every little bit helps." [President Bush, 4/25/06]
The Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act authorizes the President to begin filling the SPR between now and December only if oil prices dropped below $75 per barrel.
Gas prices have skyrocketed more than 70 cents in the last year. The SPR currently contains 695 million barrels and is 97 percent full. Unlike previous decades, since 2001 the Bush administration has purchased oil for the SPR regardless of market conditions and shipments have continued despite record-high oil prices. Last November, the DOE announced that it had contracted for an additional 12.3 million barrels of oil shipments beginning this year. In the past, suspending SPR purchases has driven down gas prices in the short-term.
The following analyses, point to the same result if action is taken in 2008:
A 2003 report by the Minority Staff of the Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs concluded that oil deposits to the SPR drove up crude oil prices by tightening supply and reducing domestic stocks.
Independent economists, including a team at Goldman Sachs, have estimated that filling the SPR has raised the cost of oil by as much as $6 per barrel and $0.25 per gallon of gasoline at the pump.
Following Hurricane Katrina, DOE offered 30 million gallons of SPR oil (only 11 million gallons were actually withdrawn) as part of a larger International Energy Agency release, helping reduce crude prices by about $5 a barrel.
In late 2000, President Bill Clinton authorized a "swap" of oil in which 30 million barrels were released from the SPR to alleviate the threat of a home heating oil crisis due to low inventories, causing prices to fall from $37 to $31 per barrel.
The text of a letter Congressman Yarmuth and his colleagues sent to the President in March is below:
The Honorable George W. Bush
The White House
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500
Dear Mr. President:
We write to urge you to direct the U.S. Department of Energy (DOE) to temporarily suspend purchases of oil for the Strategic Petroleum Reserve (SPR). According to independent industry analysts, including Goldman Sachs, this action would allow more oil to remain on the market, and thus drive down gas prices for consumers by as much as $.25 a gallon. This action would provide the American economy a critical short-term stimulus, without requiring Congressional approval. It will save consumers money at the pump, give small business desperately needed relief, and help state and local government provide energy related services.
Our country is clearly showing indicators of a recession. Unemployment is up, retail sales are slowing, housing prices continue to slide, and consumers continue to suffer the fallout from the sub-prime mortgage crisis. Average families are feeling the effects more painfully than ever as they experience the worst inflation in 17 years, largely due to rising food and fuel prices. Although the economic stimulus package recently passed by a bipartisan Congress is an important step towards reviving our lagging economy, high gas and heating oil prices threaten to smother the benefits of the stimulus rebates as families struggle to fill up their cars and pay their electricity and fuel bills.
Currently the SPR is 95 percent full with 695 million barrels in reserve, approximately the same level it was in August of 2005 when your Administration successfully used a temporary suspension to relieve supply and price crunches following Hurricanes Katrina and Rita. The situation is even more dire today for consumers, as gas prices have skyrocketed more than 70 cents in the last year alone. The price of diesel fuel has now hit $4.00 per gallon in many parts of the country, which will ripple through the price of food and goods that are transported by rail and trucks. Suspending the SPR fill could provide the type of immediate, targeted relief that we need right now.
Because DOE has only recently signed the contract for 12.3 million barrels of oil to be delivered to the SPR over the next six months, suspending these shipments is a simple step your Administration can take immediately to lower gas prices, put money directly into the wallets of Americans, and save taxpayer dollars. In addition, the Congressional Budget Office has found that every $10 reduction in the price of a barrel of oil has a $50 billion stimulative effect on the economy. Additionally, selling this oil on the market rather than putting it into the SPR will earn the federal government about $6 million per day, or $1 billion over the course of six months.
Although we recognize this action should not be taken as a means of reducing prices in the long run, at a time when the SPR is already 95 percent full, acting now can have temporary benefits that would go a long way towards helping American families who are being squeezed, and also stimulate the economy. We urge you to take this important step.