Today members of Congress will press President Bush to halt purchases of crude oil by the Strategic Petroleum Reserve in a bid to do something – anything – to tamp down crude oil prices, which have doubled in the last year. The reserve, created in the aftermath of the 1973-1974 oil embargo, has been quietly stockpiling oil in the Louisiana Salt Caverns for three decades, with only a handful of pauses. Bush says the amount of oil being purchased by the strategic reserve – about 70,000 barrels a day – is too tiny to make any difference in oil prices. But members of Congress, including 16 Senate Republicans, say it’s worth a try.
How did a suspension in purchases by the Strategic Petroleum Reserve become a cause célèbre in Congress?
The idea has originated in large part with the Aspen, Col.-based oil consultant Philip K. Verleger. An economist, Verleger was director of the Office of Domestic Energy Policy at the U.S. Treasury under President Carter and later a lecturer at Yale University. He has been an independent consultant for some time and a provocative analyst of oil markets. For months, he has been advocating a halt in the strategic reserve purchases, which he said take the most desirable, easy-to-refine light crude oil off the market at a sensitive time for supplies. The purchases directly affect demand for the oil used as a benchmark by the closely-watched New York Mercantile Exchange. Verleger has also suggested that the Strategic Petroleum Reserve could sell some of its light crude oil and buy the same amount of cheaper, lower quality heavy crude oil, which can be used by some but not all U.S. refineries.
How much a suspension of strategic reserve purchases would sway price is a matter of dispute. Though the Strategic Petroleum Reserve purchases account for 0.3 percent of demand for that grade of petroleum, Verleger testified that it could add 10 percent to the price of light sweet crude oil on the New York Mercantile Exchange. Today House Speaker Nancy Pelosi put out a press release noting that Bush did in fact halt additions to the SPR in 2006 to blunt the rise in prices. But Bush now says that the oil bought by the reserve amounts to less than 0.1 percent of world oil demand.
If the purchases seem like a drop in the bucket of world demand, they also represent a drop in the bucket of the Strategic Petroleum Reserve, which currently has 701.3 million barrels, equal to 52 days of all U.S. petroleum imports. On Jan. 23, 2007, Bush announced plans to expand the reserve to 1.5 billion barrels.
Sen. Byron L. Dorgan (D-N.D.) has been rallying lawmakers’ support since March. “All of us feel very strongly that it makes no sense at all for the administration to be taking action to put upward pressure on prices when the SPRO is 90 percent filled,” Dorgan told me.
UPDATE: May 13th, 1:58pm: The Senate voted this afternoon to suspend oil deliveries to the country’s Strategic Petroleum Reserve until crude prices fall below $75 a barrel. The measure cleared the Senate in a 97-to-1 vote as part of a flood insurance reform bill.