Nancy Pelosi thinks the SPR will fix the price of gas
The severe energy price crisis facing millions of Americans compels strong presidential action to assist consumers and strengthen the economy. Two months ago, after initially opposing our proposal to suspend government purchases of high-priced oil for the Strategic Petroleum Reserve (SPR), you signed our bipartisan legislation into law.But further action is needed to protect our economy. I call on you to use your authority as President to draw down a small portion of the oil held in the Strategic Petroleum Reserve in order to expand available supplies and help reduce the record prices that are helping push the economy toward recession.Since your Administration took office, the price of oil has increased from less than $30 per barrel to a recent record high of nearly $150, and the price of gasoline has risen from $1.47 per gallon to a record high of $4.11 per gallon. The destabilizing impact of these price increases, driven both by market forces and by excessive speculation, have been devastating to tens of millions of Americans and businesses – and to our larger economy as a whole. These are the kinds of circumstances, in addition to national security conditions, in which utilization of the Strategic Petroleum Reserve is more than justified.As you are aware, there is nothing new or untested about releasing oil from the Reserve or deferring purchases during times of economic instability. You have done it yourself – as have President Clinton and President George H.W. Bush:
- 1990-1991 Desert Shield/Storm Drawdown. President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War on January 17, 1991. The Administration conducted a 4 million barrel test sale in August 1990 and a Presidentially-ordered drawdown of 17 million barrels in January 1991. According to the Energy Department, “The rapid decision to release crude oil from government-controlled stocks in the United States and other OECD countries helped calm the global oil market, and prices began to moderate. When the 1991 SPR drawdown was announced in conjunction with Operation Desert Storm, the price of oil immediately dropped $8 per barrel.” [Emphasis added, White House 2003 assessment of SPR]
- 2000 Swap in the Face of Rising Prices. In late 2000, President Bill Clinton authorized a swap of oil in which 30 million barrels were released from the SPR to address rising oil prices and alleviate the threat of a home heating oil crisis due to low inventories. The MIT expert testified: “The results were immediate, in spite of the fact that oil prices had not yet moved into the market – demonstrating the psychological impacts on the market when the U.S. signals its intention to act. . . By the end of the year, actual oil prices had dropped from $30.94 to $20.38 per barrel, a 34% decrease.” [Emphasis added, Testimony of Melanie Kenderdine, Select Committee on Energy and Global Warming, 4/24/08]
- Releasing oil from the Reserve is a tool to manage our national and economic security, and when judiciously used will in no way jeopardize national security. The Reserve is currently 97 percent full – the highest level ever – with enough oil to meet our national security needs. We have more oil in the SPR than we did in 2006 (702 million barrels vs. 688 million in 2006) when you deferred deliveries stating: “Our Strategic Reserve is sufficiently large enough to guard against any major supply disruption over the next few months.” The current inventory exceeds our International Energy Program commitment to maintain at least 90 days of oil stocks in reserve (when you include private and public stocks, as other countries do).According to the U.S. Department of Energy, oil from SPR deployment can enter the market 13 days after a Presidential decision. Deploying a small portion of the resources in the SPR would provide much needed assistance to American consumers facing record prices and help our economy during a serious period of instability. I strongly urge you to use every available tool, including deployment of the SPR, to provide timely relief for American consumers and businesses.
Now, I’m going to make this as simple as possible. Basically she’s stating that by releasing 30 million gallons, we could drop the price of oil by five dollars a gallon. Here is why this is screwed:
- In 1990, the price of crude was about $23.00 a barrel. Dropping the price $8 meant a about a 33% drop in the price of gas. The price of gas at the pump dropped from about $1.27 to about $1.01. That meant something.
- In 2000, the price of crude dropped from $30.94 to $20.38. That meant something. THe price at the pump peaked at about $1.65, then dropped to $1.38 by the end of the year. Although a 16% drop, it was quickly erased within six months of 2001.
- In 2005, the problem was not a market issue, but rather a one-time event that disrupted the US’s ability to refine crude. By releasing the strategic reserve, it simply kept the supply going until the rigs and refineries could be repaired.
Now, the point is, 30 million gallons in 1991 supplied about 2 days of US average consumption. In 2000, it supplied about one and a half days. I don’t count 2005 because that was a very proper reaction to an extinuating event the strategic reserve is actually designed for. In 2008, it still is about one and one half days. In 1991, it had an impact on price. In 2000 it basically did not. What would be the difference? See if this makes sense:
That is a chart showing world consumption. In 2000, the US consumed about 19.701 million barrels a day. Projected for 2009, the US is about 20.339. Now, that’s not much of an increase. In 1991, it was about 16 million. Bottom line, the US isn’t using much more than we did in 1991. Taking into consideration the economic growth since 1991, the US is actually profoundly more efficient than it was in 1991. Now, that first column of figures about doubles in the last ten years. That folks, is China. The fourth column is the rest of the world besides the US and China. Now, where the problem is, is that in 2000, OPEC was a surplus supplier. They were producing more than they were selling. Now, the reverse is true due exclusively to the fact that China and the rest of the world are demanding more. Not the US. Does it get any clearer than that?
Apparently not to Nancy.
She still refuses to encourage any production that would offset the supply that OPEC can not meet. The result of OPEC not being able to meet that demand is skyrocketing crude prices. Even simple math should tell her that $8, being a 33% drop in crude that resulted in a 25% drop in gas price didn’t get the full value of the crude discount. There’s an 8% discrepency. So, doing the math, if she gets $8 on $145, which is 5.5%, and loses the same 8% of that, that would be a 5% cut on price. That folks, would amount to 21 cents on $4.15. The price of gas rose faster than that last week alone. And, given the world demand that we are so reliant on, I doubt we’d get even that because OPEC will simply sell that 30 million barrels to someone else, China or India I’m sure would take it in a heartbeat. And, then, we’d have to re-supply teh SPR at a much higher price anyway or risk complete collapse economically if another Katrina does occur.
Simple fact here Nancy, there are no magic bullets. We have to re-think and re-tool our supply mechanism before this goes away. And, until this goes away, we will not be in a position to shake down OPEC like we could twenty years ago.
Do I think Nancy Pelosi is truly that stupid? Yes I do. However, I truly believe there are a lot of people in this country that will buy her hrhetoric simply because they love to hate our President.