Halt strategic oil buys

According to AAA, the average retail price of regular, unleaded gasoline reached $3.50 per gallon last week. The average price of diesel fuel is even worse — $4.20 per gallon.

Consumers face inflationary pressures at the pump, at the airline ticket counter and from the cost of transporting goods. Worse yet, the summer driving season hasn”t started.

Today”s oil prices generally reflect supply and demand. Underneath these market fundamentals, however, are several contributors to the unprecedented prices.

Growing world economies, particularly in India and China, are boosting world demand. Increased environmental regulations, geopolitical tensions and the weak U.S. dollar also contribute. In markets with limited supply, effects are even more dramatic and uncertain.

Federal government policies should not make things worse. That”s why I am sponsoring legislation that calls for temporary suspension of federal oil purchases for the Strategic Petroleum Reserve, or SPR.

Future federal acquisitions would be triggered when the price of regular, unleaded gasoline is less than a nationwide average of $2.50 per gallon or diesel fuel returns to an average of $2.75 for four weeks.

S. 2927, would also ensure future government oil purchases are fiscally responsible. These common sense proposals follow recommendations by the Government Accountability Office (GAO).

The SPR was initially created in the mid-1970s to protect the nation from oil-supply disruptions following the Arab oil embargo. I think we all can agree on the goal of protecting America”s energy security.

The SPR already contains 700 million barrels of oil in the salt caverns of Louisiana and Texas. Under current policy, the federal government acquires another 70,000 barrels of oil each and every day to inject underground.

While there is disagreement about the total impact to consumers, it is clear these federal acquisitions have a definite impact on price. The administrator of the Energy Information Administration recently testified that EIA modeling shows a reduction of 100,000 barrels of oil per day has an impact of $2 per barrel and 4 cents to 5 cents per gallon. Other analysts have argued that continuing to fill SPR could add as much as 10 percent to the price of oil.

When the federal government buys oil at today”s prices, it is an expensive proposition for taxpayers. The current strategy will cost $245 million per month, or nearly $3 billion per year.

This suspension will not provide the full relief consumers are seeking. But it is an important step.

The federal government”s current practice of buying tens of thousands of barrels of crude oil per day has three downfalls:

(1) It removes precious oil supplies in an already tight market.

(2) Given today”s record prices, the cost to taxpayers is enormous.

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