Democrats Tie Price Rises to Oil Diversion

From Associated Press

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, according to a study released Wednesday by Senate Democrats.

The report 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 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 rejected the notion that the government's decision significantly affected energy prices. He said the amount was too small to have an impact.

Some critics also have said taxpayers have lost millions of dollars because of oil acquisitions for the reserve during periods of high prices. While the government does not technically buy oil, it accepts oil in lieu of royalty payments on oil pumped from federal land.

At 100,000 barrels a day, filling the reserve when crude was selling at $30 a barrel rather than $20 a barrel cost taxpayers $1 million a day in lost royalties, the Levin report said.

During 2002, when oil was diverted into the strategic reserve, oil prices climbed from the low $20s a barrel early in the year to more than $30 a barrel toward the end of 2002. War jitters have caused prices to continue climbing, recently passing $37 a barrel before retreating modestly.

Energy Department spokesman Joe Davis said inventories dropped because OPEC cut production in early 2002, Iraqi oil exports declined and production in Venezuela was stopped in December. As for oil that went to the reserve, "we're talking about a drop in the bucket," said Davis.

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