Senate Democrats Blame Bush for Increased Oil Prices

WASHINGTON – President Bush's decision after the Sept. 11 terrorist attacks to aggressively boost the federal emergency oil stockpile contributed to a dramatic decline in commercial oil stocks and caused energy prices to soar, says a study by Senate Democrats.

The report released Wednesday said that the diversion during 2002 of 40 million barrels of crude into the Strategic Petroleum Reserve required refiners to dip into their commercial inventories at a time when markets already were tight and production by the Organization of the Petroleum Exporting Countries was being reduced.

"We're confident this had a significant impact on the price of oil in 2002," said Sen. Carl Levin, D-Mich., who released the report prepared by the Democratic staff of the Senate Government Affairs investigations subcommittee he chaired last year.

Energy Secretary Spencer Abraham has defended aggressively filling the reserve, which now has about 600 million barrels -- equivalent to four months of oil imports from the Middle East -- stored in salt caverns on the Gulf Coast. The administration has cited national security as the reason for those stocks to be increased.

The Levin report cited internal Energy Department documents showing that the Bush administration in early 2002 decided against deferring the deliveries despite warnings from career officials that syphoning oil away from the market could have adverse impact on commercial inventories and prices.

"Commercial petroleum inventories are low, retail product prices are high and economic growth is slow," wrote John Shages, a senior official at the Strategic Petroleum Reserve office in Louisiana, in one memorandum. "The government should avoid acquiring oil for the reserve under these circumstance."

Shages said the government purchases during a tight market "would be difficult to defend" and could be criticized as mismanagement.

While the government was buying the oil last year, commercial crude inventories declined by 10 percent from 310 million barrels to 280 million barrels. Energy economists have cited the tight inventories as a key reason for the sharp price increases of crude as well as gasoline and heating oil.

"Removing 40 million barrels from the marketplace ... increased oil prices which caused U.S. oil refiners to take oil from inventory instead of buying expensive new oil," the Levin report said.

Increasing emergency stocks has been a top priority since the Sept. 11, 2001 terrorist attacks. Two months after the attack, President Bush directed that purchases be accelerated to fill the reserve to 700 million barrels by 2005.

As oil prices flirted with $30 a barrel in late 2002 and Venezuelan imports disappeared, the Energy Department decided to shift policy and begin postponing deliveries to its emergency stockpile. On Tuesday, the department announced it also would postpone April deliveries because of current tight market conditions.

Levin welcomed the latest decisions, but argued Wednesday that they should have been made a year ago. He maintained the government's aggressive oil purchases did nothing for national security.

"The overall inventory of oil in this country was no better in the end of 2002 than it was at the beginning of 2002. We had 40 million more barrels in the petroleum reserve, but we had 40 million fewer in commercial oil inventories," he said.