Panel reviews fed's role in high fuel costs

| Friday, March 07, 2003

The national price of fuel zoomed last year because the government stockpiled oil, according to a March 5 report by Senate Democrats, which notes the diversion of 40 million barrels of crude from markets into the government-owned reserve.

With markets tight and oil prices high, refiners dipped into their inventories to replace the oil going into the reserve, said the report produced by the Democratic staff of the Senate Governmental Affairs investigations subcommittee.

Sen. Carl Levin, D-MI, the ranking Democrat on the subcommittee and its chairman last year, attributed the price spikes to President George Bush's decision to beef up the country's oil reserves in the wake of the Sept. 11 terrorist attacks.

The Democrat urged Bush to delay oil diversions into the Strategic Petroleum Reserve in 2003 to ease oil shortages in the U.S. market and to bring prices down from $30 a barrel. Currently, there are 600 million barrels of crude – equivalent to four months of oil imports from the Middle East – stored in salt caverns on the Gulf Coast.

Meanwhile, on March 4, the U.S. Department of Energy announced it would delay diversions for April after already postponing them in January and February.

In 2002, the Energy Department, which is run by former Michigan GOP Sen. Spencer Abraham, diverted 40 million barrels of crude oil into the reserves even as prices for crude oil steadily increased, according to the study.

But Abraham said the government's decision to continue filling the reserve during most of 2002 didn’t significantly affect energy prices. He said the amount was too small to have an impact.

"The principal issue here is national security, and we believe and continue to believe that enlarging the amount of emergency reserves we have in the strategic reserve is very important to America's energy and national security," Abraham said, according to press reports.

Comments