WASHINGTON¡ªIn an effort to quell continually rising oil prices, United States Speaker of the House Nancy Pelosi called on President George W. Bush to draw down a small portion of oil held in the country¡¯s Strategic Petroleum Reserve (SPR).
Pelosi wrote in a letter to Bush that this measure needs to be taken ¡°in order to expand available supplies and reduce the record prices that are helping push the economy toward recession.¡±
In May, the U.S. Congress and Senate voted to halt deliveries (70,000 barrels of oil per days into the SPR for the rest of the year despite objections by the White House, which contended that it would have a meaningful impact on oil and gasoline prices that continue to break records on a near daily basis. The White House said at the time that it would not veto this Senate directive, which is part of a larger flood insurance bill, according to a May report by The Wall Street Journal.
But in May it signed H.R. 6022, the Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act of 2008 into law, which temporarily suspends the acquisition of crude oil for the SPR.
The SPR is currently 97 percent full with 702 million barrels compared to 2006 when it held 688 million barrels, noted Pelosi. She also said that releasing oil from the SPR is a tool to manage the country¡¯s national and economic security and when judiciously used will not jeopardize national security.
The topic of releasing oil from the SPR has received a fair amount of attention since last May, when the American Trucking Associations (ATA) asked the White House to release oil from the SPR to curtail the ongoing run-up in oil prices that are hindering the trucking industry. The ATA made this request shortly after it projected a record high 2008 diesel fuel bill, with the industry on pace to spend $135 billion on fuel this year based on fuel price forecasts at the time. The industry concern added that 2008¡¯s increase marks a $22 billion increase over the $116.2 billion spent on fuel by the trucking industry in 2007.
¡°As the price of oil skyrockets, it not only devastates truckers but their customers as well, many of which are mom-and-pop stores, and ultimately the consumer,¡± Graves said in a letter to the President. ¡°We are very concerned that out-of-control energy prices will greatly magnify our current economic slowdown and delay our economic recovery¡.Please help not only the trucking industry, but the entire economy by trying to burst the bubble in the crude market by releasing oil from the Strategic Petroleum Reserve.¡±
Graves added that any policies the White House can implement to slowdown the spike in oil prices are needed. And he added that releasing oil from the SPR can be viewed as a major policy action. Crude oil inventories are not the problem, said Graves. But, he noted, ¡°the oil market is no longer functioning on supply-and-demand fundamentals as many hedge funds drive up the price of crude based on based on speculation. We need something to break that chain, and a SPR release could do it.¡±
Even through it appears that politicians have good intentions to lower fuel costs, some industry experts contend that halting SPR petroleum acquisitions may not deliver what it promises.
¡°The purpose of the Strategic Petroleum Reserve is to assure adequate supply¡ªto prevent long lines at fuel pumps¡ªand not to hold down fuel prices,¡± said James Haughey, chief economist for Reed Construction Data (a corporate sibling of LM), in an interview. ¡°If it is used to subsidize prices for fuel buyers it will not be there when it is needed to during a shortage of supplies at any price.¡±
Haughey added that politicians understand that stopping the small amount of crude oil put in reserve will have a negligible impact on fuel prices but he explained that they hope it will have a big impact on their vote counts later this year.
¡°This is politics not economics,¡± said Haughey.
