This abundance does not seem to stop prices from flying up and we want to know why:
In my never ending quest for facts, I am never afraid to go to the source, get the other point of view, whatever it takes to make a fair assessment of a situation, and my investigation into the facts on the relationship of the Strategic Petroleum Reserve [SPR] and the price of oil is... that this government is being run by thieves!
This is just my humble opinion of course, but feel free to judge for yourself.
The facts were far worse than my initial estimates when I first mentioned it on Tuesday, as I have long blamed the SPR as a side factor in adding to the price of oil but President Clinton reminded me that I should trust nothing this administration tells us so I went deep into the archives for this report.
As we know, Clinton/Gore had used the SPR as it was originally intended -- as a buffer in times of crisis. Where they differed from Bush is that they saw high oil prices ($30 at the time) as a crisis, and used the SPR as a way to assure reasonable prices for American consumers.
After all, as any squirrel can tell you, you store nuts when they are plentiful during the summer so you can eat them during the winter (see Clinton's remarks) at bottom. To spend all your summer gathering nuts only to let yourself starve while your home is filled to the brim is not exactly Darwin's idea of a successful survival strategy. Of course, this administration rejects Darwin on many levels!
Oil was so plentiful back in 1999 when it was selling for $14 a barrel that OPEC was forced to make 4.2M barrels in production cuts. That, coupled with a rapidly recovering economy, drove prices back to the 1990s average of $20 a barrel.
An exceptionally cold winter caught refiners by surprise but it was speculators, including Enron that took control of the markets and created false shortages over the summer of 2000 (although this was not known at the time), along with investors piling into the market as it looked as though Gore would lose the election.
Oil plunged back down in the fall as Clinton used the SPR to reduce prices. Oil was down to $25 in November (-30%) when Gore won the election, but recovered back to over $30 when the Supreme Court gave the Presidency to Bush anyway. With plenty of oil still on the market, prices languished in the $25-30 range until 9/11, when the unintended consequence of the attack on America resulted in no decrease in supply coupled with disrupted demand, which drove oil back under $20.
What's a responsible oil man to do?
There are two things you can count on to increase prices, higher demand and lower supplies. One thing that always does both quite nicely is war, as those armored vehicles and battleships tend to be quite the gas-guzzlers! Well you can't have much of a war against a guy who lives in a cave so, with oil at $25 for most of 2002 (after cleaning out Afghanistan in just 5 months), we turned our attention on Iraq.
What if the anti-Bush media has it wrong? What if the war in Iraq wasn't about getting our hands on Iraqi oil but rather, on getting it out of the hands of a man who was willing to sell it? Iraq has (had) the lowest production costs in the world, and Saddam was a frequent OPEC cheat -- selling as much a 400,000Bpd on the black market, outside of allowable quotas.
Who on Earth could possibly have a motive to knock out Iraq's oil supply and drive global energy prices through the roof?
Interestingly, this is another scathing indictment of the administration that has been wiped from web (salvaged by Google's Cache files).
Gosh, with all these things going on to distract the American people, what could the President have had time to focus on? Funny you should ask:
After Bush-I set a precedent by successfully using the SPR to keep prices in-line in the aftermath of the first Gulf war (remember the oil fields were on fire!), Clinton used the SPR sparingly but effectively during his presidency and oil was cheaper for those 8 years than at any time since before 1973.
Having made such good STRATEGIC use of our Petroleum Reserves, Clinton, like any good planner, made moves to build up our storage during a period of excess supply.
On Jan 11, 1999 -- Energy Secretary Richardson announced a plan to refill the SPR (which was down to 560M barrels from a 1994 high of 592M -- 90% full) by "taking advantage of today's low oil prices to re-build our strategic oil reserves."
The plan was to replace 28M barrels at a rate of about 100,000 barrels a day. Sen. Murkowski (R- Alaska) said at the time, "Buying oil back into the SPR is a win-win-win. It would bolster America's energy security, it would draw down oil from a glutted world market and it would benefit the country's small domestic producers"
In September of 2000 Clinton used 30 million barrels that he had bought cheaply to offset the above-mentioned distillate shortage, successfully dropping prices to 30% off their summer highs even while OPEC cut production by more than 10%!
As Clinton left office, the contracts in place had the reserve rising to 592M barrels (over 90% full) by January '03 at a livable 100Kbd pace.
After 9/11, with the American people in a state of confusion and oil prices dropping off, the Bush administration set a mandate to increase the size of the SPR by 60M barrels and to fill its 260M barrel spare capacity "as quickly as possible."
The reasoning at the time was the fist great pillar to be erected in THE FEAR FACTOR:
"To protect the nation from an imminent disruption in oil supplies, the President could order all or part of the oil released into the market."
As you may have guessed, other than an unnecessary offer post Katrina (PDF), that never happened...
At the time there was no supply disruption, nor was there any particular demand for more oil outside of the military, who were burning through an extra 150,000 barrels a day as we rolled into Kabul -- this is over and above the 100M barrels they use in a typical year!
The short story, and you can read the blow-by-blow HERE, is that they kept upping and upping the fill rate of the SPR until, by February 2005 the Government was taking over 200,000 barrels of oil per day off the market at the same time as our troops in Iraq and Afghanistan continued to burn over 150,000 barrels a day for a WEEKLY inventory draw down of 2.5M barrels.
So that's $90M a week of your tax dollars being spent on oil at record level prices (when you wonder what idiots are paying $70 a barrel for oil -- it's you!), and another 60M oil dollars a week spent finding Osama -- no, wait, we were stopping Saddam from using his WMDs -- no, we were spreading democracy... or were we securing our national interests -- I forgot -- why are we there? Well anyway, the government is using a lot of oil!
350,000 barrels of oil a day is 8% of China's total consumption. In fact, there are only 32 countries in the World that use more oil than that!
By January 2003 the additional consumption of crude was having such an impact ($34) that Sen. Carl Levin (D -- Mich), initiated an investigation into the DOE (Department of Energy) and whether they were, in fact causing the run-up in crude prices:
"Today the cost is $34 a barrel, but the course the government is on is to send more oil to the SPR, reduce world supplies, and spike prices even higher. The Administration should be putting oil in the Reserve when market prices are low, not high. Removing oil from the marketplace now would send hundreds of millions of dollars into the pockets of oil companies and oil-producing countries at the expense of American consumers and business forced to pay the higher prices that will result."
"But the method the Bush administration chose was to fill the SPR without regard to crude oil prices at all, but simply at a constant rate of speed. The result was extremely high prices for gasoline and increased charges to be born by the taxpayers. The Bush administration denies this. But the method they chose did not add any additional reserve oil to the nation's strategic supply. So why do it? Oil companies were happy, after all oilmen contributed $26.7 million to Bush's campaign in 2000 and another $18 million for the 2002 election."
The "minority report" was not only ignored by the Bush administration, it seems to have been celebrated as they promptly went out and raised rate of fill and cap levels in February, May and again in February 2004!
Rather than soaking up excess crude, the administration competed with the private sector to secure oil, running up the prices and simply taking oil out of the hands of freely flowing private reserves and placing it into inflexible, difficult to access government stockpiles as illustrated in this total U.S. stockpile graph:
It is very easy to see how this action can make us far less secure and far more susceptible to supply shocks. Meanwhile, don't let that scare you into paying higher prices, the SPR is nearly full and, as long as they don't do anything crazy like liquefying natural gas in order to stick that in the ground, remember that 1.8B barrels is 180 days worth of imports!
Perhaps calling them thieves is too strong a term for the kind of people we are dealing with. As John Perkins says:
"Although unconscious, deceived, and -- in many cases -- self-deluded, these players were not members of any clandestine conspiracy; rather, they were the product of a system that promotes the most subtle and effective form of imperialism the world has ever witnessed."
Read all of Phil Davis's articles on Seeking Alpha.