Levin Warns Bush Administration Increased SPR Oil Deposits Are Contributing to Oil Price Surge

WASHINGTON – As crude oil prices top $35 per barrel, nearing a 10-year high, and U.S. crude oil inventories sink to all-time lows, Sen. Carl Levin, D-Mich., again called on the Bush Administration to suspend further deposits into the Strategic Petroleum Reserve (SPR) until surging crude oil prices stabilize and consumers get relief from rising prices for gasoline, home heating oil, and other petroleum products.

"On Monday, the administration announced contracts to put another 24 million barrels of oil into government storage at the SPR to accelerate the SPR fill program, but this is not the time to be putting oil into a government reserve," said Levin. "Filling the SPR now will reduce world oil supplies, drive high prices even higher, and hurt American consumers and business. Crude oil prices are already approaching heights not seen since the Gulf War, and U.S. crude oil stocks are already at their lowest levels in decades. Filling the SPR now means taking millions of barrels of crude oil off the market when there isn't enough oil to meet demand in the private sector. The administration's short-sighted and ill-timed plan will help cause the very price increases and economic damage that the SPR program was designed to prevent."

On February 10, 2003, the U.S. Department of Energy (DOE) announced it had awarded three new crude oil delivery contracts to Chevron Texaco Global Trading in Houston, Shell Trading in Houston, and Exxon Mobil Oil in Fairfax, Virginia, to deliver about 116,000 barrels per day to the SPR for six months from May to November. It also announced deliveries of about 15,000 barrels per day from producers off the Texas coast, for a combined total of about 24 million barrels. To meet these delivery schedules, oil companies are now purchasing or setting aside the crude oil, driving market prices higher and further reducing supplies available to the private sector.

In November 2001, President George W. Bush ordered the SPR to be filled to its maximum capacity of 700 million barrels as quickly as possible. The SPR now holds 600 million barrels of crude oil, the largest volume in its history.

Some SPR deliveries scheduled for December 2002, and January, February and March 2003, have been deferred by DOE, but not deliveries for April or May.

"Rising crude oil prices damage the U.S. economy by increasing the cost of gasoline and oil for consumers and increasing operating costs for business," said Levin. "That's why the SPR was established – to prevent that damage. In the past, when oil prices exceeded $30 per barrel, administrations have ordered oil to be released from the SPR, but this administration, instead of releasing oil, is sending more oil to the SPR to increase government supplies. Gasoline prices have already hit $2 per gallon; taking millions more barrels out of the marketplace to put them into government storage will push up prices again, not just for gasoline, but for home heating oil, diesel fuel, and jet fuel, putting more pressure on our economy when it is already ailing."

The SPR was first established in the 1970s. Its primary mission is to provide a source of crude oil to meet U.S. needs in the event of a severe disruption in supply. President George H.W. Bush ordered the first release of oil from the SPR at the outset of the Gulf War in 1991. About 17 million barrels were released. In 2000, President Clinton ordered a second SPR release to counter rising prices for home heating oil. About 30 million barrels were released. Both times, oil prices dropped.

The amount of crude oil held in U.S. storage by private companies is at a record low, hovering just above the 270 million mark below which refineries begin to slow operations due to inadequate oil supplies. In January, DOE's Energy Information Administration warned that continued reductions in U.S. crude oil inventories could force U.S. oil refiners to cut back production and cause energy prices to climb even higher.

"U.S. crude oil stocks are dangerously low," said Levin. "If they go any lower, even a minor problem could disrupt supplies, shut down refineries, and spike prices, inflicting more pain on U.S. consumers. U.S. consumers and businesses already are paying the oil companies and oil-producing countries a premium for basic necessities -- to drive our cars, heat our homes, and ship our goods. The last thing the American people need right now is for its government to take oil off the market and send oil prices even higher. Removing oil from the marketplace now will send hundreds of millions of dollars into the pockets of oil companies and oil-producing countries at the expense of American consumers and businesses, which will be forced to pay the higher prices that will result. President Bush should suspend SPR deliveries immediately, until prices stabilize."

In 2002, as Chairman of the Senate Permanent Subcommittee on Investigations, Levin initiated an investigation into the extent to which the administration's program to fill the SPR may be affecting crude oil prices. A report summarizing the results of that investigation is being prepared and is scheduled to be released in a few weeks.