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FOR IMMEDIATE RELEASE: March 24, 2004

SENATORS: WHITE HOUSE REFUSAL TO STOP FILLING OIL RESERVE IS HELPING TO DRIVE RECORD-HIGH GAS PRICES EVEN HIGHER

Gas prices hit all-time high for 2nd day in a row, but Administration refuses to stop taking oil off of the market: White House policy helping to raise US gas prices

Last year, White House stopped filling SPR because of tight US oil supplies, but US oil supplies today are virtually identical to last year's levels

Schumer, Reid, Wyden urge White House to stop filling SPR immediately

With AAA reporting that gas prices hit an all-time high yesterday, US Senators Charles Schumer, Harry Reid, and Ron Wyden charged today that the White House's refusal to stop filling the Strategic Petroleum Reserves (SPR) is helping to contribute to the skyrocketing gas prices around the nation. For the second day in a row, AAA announced that retail gas prices hit an all-time high, climbing to $1.74 a gallon nationwide, up a tenth of a cent from its previous record from August 30, 2003.

"For someone who is supposed to be such a big NASCAR fan, you'd think President Bush would want to do something about these high gas prices," Schumer said. "You really have to scratch your head about why the White House is refusing to budge from a policy that is contributing to higher gas prices. We know that filling the SPR plays a role in setting oil prices and that this Administration has halted filling the SPR in the past. At some point, people have to wonder why the White House is doing more for OPEC than it is for the American driver."

“If this is a problem of supply and demand, let’s fix it by increasing the supply. The American people deserve some relief from these skyrocketing prices. In my state, Nevada, gas prices increased 35 cents a gallon in the month of February alone - and it’s expected to get worse this summer. Former President Bush and President Clinton both used the Strategic Reserve to help stabilize oil prices, and it was a great help to hardworking American families. President Bush should follow suit now," Reid said.

"The Bush Administration saying that OPEC is going to make sure American consumers don’t pay higher gas prices is like saying Colonel Sanders is going to make sure chickens don’t end up cooked," said Wyden. "The FTC needs to get off the sidelines and use its authority to stop the anti-consumer oil company practices that I’ve documented and that continue to drive up gas prices. There’s a perfect storm coming that could drive gas prices higher than ever before, and the Administration has absolutely no plan to protect consumers from surging prices at the pump."

Although the Senate passed a bipartisan amendment urging the Administration to stop taking oil off the market, the White House has refused to follow suit. Yesterday, Energy Secretary Spencer Abraham reiterated that refusal during a Senate hearing, saying that the SPR would not be effective in reducing prices.
Schumer, Wyden and Reid took issue with Abraham's assertion and pointed to the Bush Administration's decision to defer the delivery of oil to the SPR during the 2002-03 winter in an effort to stabilize rising prices caused by tightness in world oil markets. The oil inventory levels leading to that decision were virtually identical to conditions today. In December, 2002, the US oil supply (excluding the SPR) had 278 million barrels. Today's supplies have 281.1 million barrels (excluding the SPR).

In addition, the Senators pointed to a March 2003 report by the minority staff of the Senate's Permanent Subcommittee on Investigations that said filling the SPR when oil supplies are tight has an impact on prices. For example, in late 2001 and early 2002, about 25 million barrels of Brent crude oil were deposited into the SPR despite tight supplies on world markets. In a 1-month period in mid-2002, crude oil price increases caused by SPR deposits spiked the U.S. spot price of home heating oil by 13 percent, jet fuel by 10 percent, and diesel fuel by 8 percent. As a result, US consumers got hit with additional crude oil costs of between $500 million and $1 billion. These price hikes generated the kinds of economic impacts the SPR program was designed to prevent.

Nationwide gas prices have risen 11.5% from $1.56 a gallon in 2000 to $1.74 today, hitting an all-time record for the second day in a row. Gas prices are expected to rise to $1.83 a gallon this summer, which would be a 17.3% increase in gas prices. California, Hawaii, Arizona, Nevada, New York have the highest gas prices in the nation, with the cost of premium unleaded there costing more than $2 a gallon. In Oregon, premium unleaded costs $1.96 a gallon.

Schumer and Reid have called on the White House to initiate a swap of oil from the SPR to increase the supply of oil, a proven way to reduce the price of gasoline and heating oil. The Clinton Administration's 2000 decision to release 30 million barrels over 30 days caused prices to quickly fall by over 10% and stabilize for nearly a year. The Senators explained that under a swap, the federal government could decide on a set quantity of oil to release from the SPR, and accepts bids from private companies for the rights to that oil. These companies would then place bids on how much oil they are willing to return to the SPR at a later date.

The federal government would then accept those bids which will result in the best return for the SPR. For example, if the federal government decided to release oil and a private company wanted to obtain 10 million barrels, the company would bid for the 10 million barrels by promising 15 million barrels to be returned to the SPR at a later date. Such an action could create a win-win scenario under which the release of oil from the SPR lowers gasoline prices, and in the long term to goal of filling the SPR is advanced at no additional cost to the taxpayer.

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