Wyden Charges Administration with: "Buying nothing but higher gas prices for American families"
Washington, D.C. - As American gasoline prices hit record highs, Senator Ron Wyden (D-OR) is questioning the timing of the Bush Administration's announcement that it will begin transporting 9.2 million barrels of Royalty In Kind crude oil to fill the Strategic Petroleum Reserve (SPR). Slated to begin July 1, 2007, this would be the first installment of a 27 million barrel transfer to the SPR.
In a letter to President Bush, Wyden expressed concern with the Administration's decision to forego the revenue from the sale of the Royalty In Kind oil - which at current prices could mean more than $1.6 billion for the U.S. Treasury - and further depress the supply of crude oil, which will likely mean higher gas prices for Americans.
Wyden writes: "Unless the Administration has figured out how to repeal the laws of supply and demand, it is economic malpractice to remove 27 million barrels of crude oil from the market when consumers are now buckling under the weight of record high energy retail prices for gasoline. I ask that these purchases be halted to prevent further pressure on oil and gasoline prices when Americans already are suffering from energy costs rising at a far greater rate than their paychecks."
The U.S. Strategic Petroleum Reserve, which was created following the 1973 energy crisis, is the world's largest emergency supply of crude oil, with a current inventory of 690 million barrels.
The full text of Senator Wyden's letter is below:
The Honorable George Bush
The White House
Washington, DC
Dear Mr. President,
I am writing to express my deep concern and astonishment at the May 31, 2007 announcement by the Department of the Interior's Minerals Management Service that it has awarded contracts to transport 9.2 million barrels of Royalty In Kind crude oil to fill the national Strategic Petroleum Reserve (SPR) as the first installment of a 27 million barrel transfer to the SPR. As you know, inflation adjusted retail gas prices have recently reached an all-time high. Today, as American families are struggling with the increased burden of soaring gasoline and transportation costs, it is truly incredible that the Administration would decide to now remove such a significant quantity of crude oil from the market.
The close relationship between wholesale crude prices and consumer pump prices is recognized by both industry groups and federal agencies. According to the Energy Information Administration (EIA), fifty percent of the retail price of gasoline can be attributed to the wholesale price of crude oil. Likewise, the American Petroleum Institute touts an independent study suggesting that nearly all change in gasoline prices between 1999 and 2006 can be attributed to increases in the price and reductions in the supply of crude oil. While I believe that multiple factors influence the price of crude oil, and that crude oil prices have increased due to both real reductions in supply such as the impact of Hurricanes Rita and Katrina, on Gulf of Mexico production, and artificial reductions, such as efforts by the Organization of Petroleum Exporting Countries (OPEC) to limit supply, there is no debate about the fact that crude oil price and supply is a major factor in the price Americans pay at the pump for gasoline. Yet, during the run-up in crude oil prices between 2002 and 2005 from an average $22.51 to $46.47 per barrel, the Administration chose to remove over 112 million barrels of oil from the market and place it into the Strategic Petroleum Reserve at a cost to the American taxpayer of $4.4 billion. Now, with crude oil at over $65 a barrel, the Administration has chosen to remove a total of 27 million barrels from the market over the next 18 months at a time of limited supply and record prices.
If the timing of this decision was not questionable enough based on the crude oil and gasoline markets, the United States has now entered hurricane season with the National Oceanic and Atmospheric Administration (NOAA) forecasting a hurricane season with above normal activity. NOAA predicts thirteen to seventeen named storms, with as many as five becoming hurricanes of Category Three strength or higher. Katrina showed us the devastating impact that hurricanes can have on our oil drilling, refining, and distribution infrastructure. To sign contracts calling for the removal of millions of barrels from the Gulf of Mexico market beginning on July 1, as we reach the height of hurricane season, flies in the face of experience.
Finally, in addition to these negative price consequences and market distortions inherent to such a buildup, this expenditure is indefensible in light of current budget shortfalls. It is shortsighted to contribute to the burgeoning Federal budget deficit by foregoing the revenue from the sale of this oil, which at current prices would be over $1.6 billion. This amounts to a double loss to American taxpayers with the lost revenue buying nothing but higher gas prices for American families.
While I recognize the value in preserving some crude oil reserve capacity as an emergency stopgap measure, I do not see how it makes sense to expand this capacity at this time. The current inventory of oil in the SPR is 690 million barrels. The addition of 27 million barrels will yield minimal gain to our nation's energy security while inflicting significant pain for US consumers at the gas pump. Unless the Administration has figured out how to repeal the laws of supply and demand, it is economic malpractice to remove 27 million barrels of crude oil from the market when consumers are now buckling under the weight of record high energy retail prices for gasoline. I ask that these purchases be halted to prevent further pressure on oil and gasoline prices when Americans already are suffering from energy costs rising at a far greater rate than their paychecks.
Sincerely,
Ron Wyden
United States Senator
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