testing one two three testing one two three testing one two three petroleum reserve and record gas prices this summer families all across america will pile into their car to take the a vacation unfortunately as a result of nearly eight years of the bush administration's energy policy they will face gas and oil prices that are skyrocketing out of control with no and in sight earlier this week oil reached yet another all time high trading above one hundred and nineteen dollars per barrel the price of oil has risen by one hundred dollars a barrel since president bush took office american consumers of paying the price at the pump for this administration's failed and a g policy they have being tipped upside down by the big oil companies they are being tipped upside down by opec with money being shaken out of their pockets at the pump every day across america gas prices have more than tripled over the last six years the price of a gallon of gas jumped twelve cents in just the last week alone and more than a quarter in the past month american families now paying three dollars and fifty three cents per gallon every time they fill up and apartment of energy projects that gas may reach or dollars a gallon by this summer and what has been the response well earlier this week from energy secretary bodman in answer to his position on this energy crisis this is what he said quote i have done everything i know how to do with opec well rather than taking action to help consumers it seems that the bush administration's response is to throw up its hands and to say that there is nothing to be done well there are things that can be done earlier this year the house to pass legislation that would redirect eighteen billion dollars in tax breaks for big oil to promote renewable fuels and clean energy however the bush administration continues to oppose this legislation that would move us away from a fossil fuel future and help provide consumers with long term relief from high oil and gas prices democrats in the house have passed four bills this congress to address high prices and break our dependence on oil this administration has answered with tax breaks for big oil and tough breaks for american consumers the bush administration is ignoring actions that would provide consumers with relief right now united states currently purchases seventy thousand barrels of oil every day to fill the strategic petroleum reserve which already contains over seven hundred million barrels and is roughly ninety seven percent full by law the strategic petroleum reserve must be filled quote as expeditiously as possible without incurring excess of costs are appreciably affecting the price of petroleum products to consumers with the price of oil at one hundred in one thousand dollars removing seventy thousand barrels of oil a day from the market to build the reserves is both incurring excessive costs for the federal government and affecting in a negative way runaway or oil and gas prices based on projections by the bush administration's own department of energy ending the  of the reserve could reduce prices by about two dollars per barrel of oil and five cents per gallon of gas not only should the bush administration stop building the reserves it should also release oil onto the world market as a weapon and escalating prices these two actions would send a strong signal to speculators and to opec that americans won't be held hostage by high prices by opec are big oil earlier this month the number two executive at exxon mobil testified before this committee that speculation along with geo political instability and a weakening dollar was responsible by half of current oil prices that based only on oil supply and demand the price of a barrel of oil should be only fifty to fifty five dollars a barrel however president bush continues to refuse to use this dziedzic petroleum reserves to pop the speculative bubble the bush administration is willing to deploy our national guard reserves in iraq what are we uses to deploy our oil reserves to protect consumers and our economy president bush were to announce his intention to release oil from the strategic petroleum reserve today it would put in an immediate end to the speculative feeding frenzy that is driving up prices releasing oil from the reserve is something that can be done to help american families this summer it is high time that the bush administration does now i would like to turn to recognize the ranking member of the select committee the gentleman from the state of administrations have to have the strategic petroleum reserve affectively sometimes they haven't done it and there have been consequences sometimes they have done it and there has been an effective sometimes they haven't done it and it has been will say is that the problem that we face is one of lack of supply and the chairman referred to the hearing that we had earlier this month where either the c e o s or their representatives of the five major domestic oil companies claimed testified and in my five minutes of questioning i asked them point blank what would be the single most important thing that congress can do to lower the price of gas at the pub and every one of them said increase domestic production now what's this congress we have voted down every effort to increase domestic production  have taken away credits for domestic production which was referred to by the chairman which means it's cheaper to buy oil from opec because we have tax domestic production so high now it seems to me the time has come to quit the partisan shots and to start going back to economics one hundred one we do need to increase the supply of petroleum tapping the domestic petroleum reserve or not filling i any further is going to be literally a drop in the bucket compared to the huge amount of oil that is used both in the united states and worldwide and i think that we ought to start looking at serious issues relative to this rather than trying to get  chairman i was recalling that hearing myself it was interesting to hear the c e o s of the five top well companies as the ranking member said their main recommendation was to increase domestic production just happens to be production of the product that they make profits on the track record profits in the history of of all industries in recorded time we are in fact working on increasing domestic production of many other kinds of fuels to try to phase out the oil dependency not just foreign book oil dependency in general that is damaging the environment damaging our balance of trade deficit damaging our health damaging the climate damaging our standing in the we're then our involvement very costly involving i might say in military conflicts in unstable parts of the world to secure those oil supplies but everybody here knows that oil and gasoline has gone through the roof already exceeding four dollars in some parts of the country we didn't get into this hole overnight and there is no silver bullet that will get us out of it immediately proud that congress has acted to pass sweeping legislation to raise fuel economy provide tax incentives for green energy energy development and establish a green collar workforce so that we can get back to being a leader being the leader in the world an energy an economic policy on the right track rather than giving other countries a twenty or thirty head start on a twenty thirty year head start on such things as hybrid vehicles people in my district talk to my constituents in the nineteenth district of new york talk to me about how much they want to do and what they can do from the students high school students arlington high school and duchess county new york who recently put together plans for a solar system on the roof of their high school and got half the money from new york state and i was able to secure the other half of them in a private grant for them to a local company that's making ethanol gas if they can spin a turb hope that that's the direction that will go in and i encourage what the chairman suggesting that for now in this crisis situation we stop purchasing of oil from the strategic reserve and i feel deck the gentleman's time by the chair recognizes the gentleman from arizona mr shattuck i thank you mr chairman and i would like to commend you for calling this hearing on gas prices and for specifically on what is pumping them up and what we can do about it i want to begin by welcoming a fellow arizona and personal friend dave barry vice president of swiss transportation i believe you'll find him to be very knowledgeable about the impact of high fuel prices on our entire economy and i think i know i'm looking forward to a testimony and i think it will be helpful to the committee to high gas prices are an extremely serious problem for all americans american consumers and american businesses and therefore it's important that we identify the reason for those high prices and more important that we do what we can truly be  down i think in this committee i have repeatedly said they are unique problem for those of us those of us out west who drive drive great distances both in commuting back and forth to work or in taking summer vacations in many instances much more travel much more driving time much more mileage than those who live in in the east i would suggest that gas prices are most probably addressed by looking at the relationship between supply and demand during the last twenty five years world energy demand has increased by sixty percent the energy information administration predicts that demand in the united states alone will grow by nineteen percent through twenty thirty i wholeheartedly agree as the chairman knows with his sentiment that we have to find alternate forms of energy but every single expert that's been before this committee and that i have talked to has said that at least in the short run we are looking at an oil based economy at least for today we're talking about the price spike in gasoline over the last sixty to ninety days or at most over the last twelve which has been stunning and has had a dramatic impact on our constituents i don't think that alternative forms of energy are going to go at that issue and so we're looking at part of whether or not speculation has driven up the demand one issue here today is could we deal with that speculation by addressing the spro and perhaps releasing some fuel from it i would suggest that a much greater signal in the wrong direction is intent to speculators by all of the potential sources of oil that we have locked up in this country and made unavailable on the outer continental shelf and the intermountain west in colder shale shale toil programs and that we have sent at least in the short run in this congress by refusing to adopt policies that would open up our domestic supply even where it can be done in a very rational and safe way the wrong signals which have driven up the cost of gasoline for our many of the issues that we consider in congress are topics of the average person may not may only really can consider in their daily lives but i can tell you the issue we're discussing today people are watching they're interested in  can ask any commuter in my district or around the country how much it costs for them to fill their take a guess the last time and the exact number and also you how much more was in the they paid the week before so this is an issue that's affecting everybody in this country and in our current economy oil and gas do drive progress whether you're just going to the beach or you're driving to work on thursday high gas prices or a i just want to outline first we can do something with the to send a signal to the speculators which are a significant part of the reason for the run up in these in these prices we heard exxon vice president simon tell us that speculation was a significant part for the reason for these extraordinary volatile prices what we can do is send a message to the speculators that we are going to stop at least increase the capacity of the spro and the reason is when your house is on fire it is more important to get the hose than an additional policy of insurance and that is the situation right now we need some water we need less insurance at the moment that is clearly something we should do that's the first thing the ministration has refused to do it second we should clearly bring in the over the counter market for oil futures into the jurisdiction of the commodities futures trading commission we have these markets transparent and open and regulated in orange soybeans  but not oil and gas it is insane to have such a fundamental part of our economy open for the wild west speculation that's going on right now driving up prices that's number two refuse to help third center can't one i've called administration has failed to do before there is a long term in what the american people understand that all of the things are going to talk about today are short term they're not permanent fixes to this problem the permanent fix to this problem is found in groups like a couple of people i met my office yesterday they're the leaders of the phoenix motor car company who are going to bring it all electric car to market in june from ontario california that you can drive on all of electricity for one hundred twenty miles for three heard from a number of executives in the oil and gas business around this whole issue of the speculation the independent connecticut petroleum dealers  require less in fact you are the recipient of the commodity you would not want to be able to use the declining dollar as a way to transfer paper or continue to speculate in such a manner that it raises the state while we have been one of the leaders in biofuel production has had a moderating influence on the gas price of gas upwards of fifteen percent in some analysis that we explored with oil companies the company executives that generally agreed although they didn't think that it was upwards of at least fifteen percent that ethanol has been able to again moderate the price that we would see otherwise if we didn't have ethanol production today but i do think it's important as we explore with our witnesses today the other impacts i have long advocated in times of record gas prices whether it was last year the year before now that we not continue to add oil to the strategic petroleum  petroleum in the world for our military and other active actions do the best possible job of stretching that and finally with the work of this committee to look comprehensively at how we're going to the limited transportation people have and how we have failed in terms of promoting more technology mr chairman i appreciate what you've done with this committee looking at the big picture not just as we are today with one testify today while the s p r is our primary line of defense in the event of an emergency oil supply disruption each day the current program pulls seventy thousand barrels of oil off tight markets at a time of record high prices and volatile geopolitics attention to market conditions and the willingness to act in a more flexible and creative manner could achieve the same result but enable lower cost options for filling the s p r as well as help address prices are good for consumers extremely low prices shot in while decimate decimate the workforce particularly in the oil producing regions of the country and destroy the technical infrastructure of the industry impacts that lead to lower supplies and higher prices in the future to help mitigate these adverse impacts the clinton administration established the program provided a market outlet for domestic oil in a glut of markets and enabled without the need for new appropriations to replace twenty eight million barrels of oil and the s p r that had been sold two years earlier largely at the direction of congress simply to generate revenue the current program is operating under market conditions that are precisely the opposite of those of the original program was established to exploit in fact two energy secretaries in both democratic and republican administrations elected to pursue the path of do no harm with  secretary richardson in two thousand and secretary abraham in two thousand and three deferred deliveries under the program for fear that removing even small amounts of oil from the market would increase prices to consumers another authority where creativity and flexibility can and should be employed is exchanging oil to acquire oil this in a significant way to establish a home heating oil reserve in the northeast in two thousand chairman markey was a major  supporter of that effort the rapid stand up of this reserve absent appropriations to do so was accomplished by using this already and cost us no money we also conducted a time exchange of oil in september of two thousand when heating oil inventories in new england were seventy two percent lower than in the previous winter on september twenty second that year the president directed the secretary to conduct a time exchange of s p r oil in effect loaning the market thirty million barrels of oil the results were immediate spot prices dropped by almost twenty percent by the end of the year actual prices had decreased by thirty four percent and there was adequate heating oil supplies for the winter importantly this exchange of thirty million barrels of oil ultimately returned over thirty five to the reserve or a seventeen percent interest payment on that loan at today's prices this equates to an additional half billion dollars of oil in the reserve at no cost to the taxpayer energy bill passed last imber established the foundation for alternative energy security pathways conservative estimates are that by two thousand and twenty two provisions in that law will reduce net oil imports by well over two million barrels per day in effect increasing the insurance value of the s p r without adding any additional oil to the reserve between now and then however we have to meet what i call the eighty eighty forty challenge replacing current the c fossil fuel consumption with eighty percent carbon free or carbon light energy renewable energy and seaquest ration to avoid the doubling of c o two emissions in approximately forty years that four years also roughly equates to the time it will take us to turn over the energy infrastructure replacement cost of that infrastructure is estimated to be twelve trillion dollars to do this we will need to find new ways to finance  energy technologies and research total energy investment r and d investment in both the u s and in the u s both public and private is estimated to be around five to six billion dollars a year and according to g a o total budget authority for energy r and d has dropped by over eighty five percent since one nine hundred seventy eight i offer without advocating three options for your consideration first an outright sale  forty million barrels of oil from the s p r would generate around four point five billion dollars in new revenue that could help pay for example congressman apollo project this would have the added benefit of lowering prices to consumers not withstanding a tax that this would diminish our energy security i note that this would reduce the amount of oil in the s p r to around six hundred sixty million barrels roughly sixty million barrels more than was in the reserve when we went to dollars to fund can a key energy research programs and finally exchanging fifty million barrels of sweet crude in the reserves for heavy oil in the open market if done correctly could net roughly five hundred million dollars without reducing the overall volume of the reserves by a single barrel this combined with the roughly five hundred ninety million dollars currently in the would also provide an additional billion dollars for energy research at no cost to the taxpayer in closing in closing the current policy of taking royalty oil and a continuous flow regardless of market signals ignores many of these lessons it's a waste of taxpayer dollars to put oil in the reserve  today's prices when futures markets offer the same oil at a lower price twelve months from now thank you very much thank you very much appreciate our next dr mark cooper director of research at the consumer gasoline and motor oil have more than doubled rising by over twelve hundred dollars in a recent national poll earlier this month that seventy three percent of respondents are greatly concerned about rising gasoline prices and sixty percent  are the result of a long time combination of an international crude oil cartel in a tight domestic refining our gaap both of which have systematically under invested in production capacity by failing to expand production capacity to meet demand and provide a reasonable reserve industry with very low elasticity of supply and demand and that is prone to accidents and disruptions they have created tight and both how the markets from which they profit wh crude oil is the largest component of gasoline costs there have been months over the past five years when the domestic spread the amount that domestic refiners and marketers take at the pump has been over one dollar per gallon that domestic one dollar more over the tug of war between opec and the domestic refining industry over the extraction of consumer surplus has pushed up prices the u s gasoline market accounts for about one quarter of all the gasoline consumed in the world and is by far the largest single product market in the oil sector as u s refining margins increased opec to signal that the market will support higher prices and as a rent seeking cartel pushes crude prices up so that they get their share of the available rent so crude oil pushes a gasoline prices up and u s gasoline prices fall crude oil up anti consumer spiral speculation has also played an increasing role in driving up the price of oil and gasoline as huge influx of money increased volume volatility and risk in those financial markets a couple of years ago the commerce committee on oversight investigations concluded that speculation accounted for one third of the oil price that something like thirty eight dollars not too far off what the oil executives told you a few weeks ago  well functioning market steadily growing demand which we've had in the world does not cause this powerful surge of prices or this huge increase in volatility is the failure on the supply side to invest the concentration we allowed to  flict the domestic refining industry and barriers to entry that have allowed the cartel and the oligopoly to profit at the expense of the public with speculators driving the process forward at best our strategic petroleum policy does us little good at worst the failure to have a comprehensive policy makes matters worse we refused to build a reserve in the one nine hundred ninety s when oil was ten dollars a barrel and we refuse stop feeling it when oil is one hundred ten dollars a barrel that adds insult to injury i don't believe that s t r feel or drawdown have will have a significant impact on prices in the long term however in the short term under certain circumstances fail and draw down can in fact affect speculative bubbles or short term disruptions unfortunately at its current size the s p r is not a very credible source to execute those policies we don't have enough to credibly threaten the market over a significant period of time size matters when it comes to the strategic stockpile since nine hundred ninety as stock of crude oil have declined by forty percent from two hundred days of net imports to one hundred days on a percentage basis our gasoline inventories have the client even more than that anyone in this room believes that the world oil market has become forty percent more secure in the last two decades not at all moreover what we do not have strategic fineries or strategic product reserve when in fact refinery capacity and extremely tight gasoline inventories have been important causes of price increases over the six years the long term solution to our oil addiction lies in reducing our consumption and increasing the supply of alternative transportation fuels congress took a big step in that direction with the energy independence and security act of two thousand and seven but even if every goal in that act is achieved in two thousand and twenty two we will still be consuming over twenty million barrels and importing over ten million barrels we will still have a major national oil security problem and need a more effective strategic policy strategic petroleum policy needs to be dramatically approved in three areas expand the crude reserves so we can use it as an economic weapon it's too small we treat it as a military strategy reserve second of all we should create a refinery reserve coast oil companies have made it clear they will not buil enough capacity in the us to meet our needs and third we need to build product reserves through a mix of public stockpiles and mandatory private reserves which many european nations have thank you thank you thank you much  of the american trucking association's environmental and energy policy committee of the american trucking association represents over thirty seven thousand american truck carriers we welcome  whenever you're ready please thank you mr chairman and members of the committee my name is dave barry i'm the vice president is with transportation drug low carrier headquartered in phoenix arizona swift operates more than eighteen thousand trucks and employ more than twenty one thousand five hundred hardworking safe individuals as a trucking company swift is dependent on a plentiful supply of diesel fuel and fast swift purchases about six hundred fifty thousand gallons of diesel fuel daily to ensure that our trucks are able to deliver freight on time to our customers last year during the first quarter swiss spent about two dollars thirty seven cents per gallon for diesel fuel and this year first quarter we spent about three dollars and thirty seven cents per gallon this dramatic forty two percent year over year increase in the cost of diesel fuel is harmful to swift and to the u s economy i must add that earlier this week the national average price for diesel fuel was four dollars fourteen cents today i appear before you representing not just swift but the entire u s trucking industry you've heard about  industry is the backbone of this nation's economy accounting for more than eighty percent of the nation's freight bill employing more than eight point five million hardworking americans the trucking industry delivers virtually all of the consumer goods in the united states we are extremely competitive industry comprised largely of small businesses roughly ninety six percent of all interstate motor carriers operate twenty or fewer trucks diesel fuel is the lifeblood of the trucking industry each year the trucking industry consumes over thirty nine billion gallons of diesel fuel this means that a one cent increase in the average price of diesel costs the trucking industry an estimated three hundred ninety one million dollars  expenses annually and every penny increase in both gasoline and diesel costs all u s consumers nearly two billion dollars the average national price of diesel fuel is now four dollars and fourteen cents per gallon nearly double what it costs in two thousand and four based on current department of energy forecasts the truck industry will be forced to spend an incredible one hundred forty one billion dollars on fuel this year t wenty nine billion more than in two thousand and seven and more than double the amount we spent four years ago today it cost approximately one thousand two hundred dollars just to fill up a truck as a result of this dramatic increase in the price of diesel which is coincided with a downturn in the economy in a softening of demand for freight transportation services many trucking companies are struggling to survive against this backdrop we greatly appreciate the opportunity to discuss the petroleum reserve and other initiatives that could help address suspected a bubble that has materialized in petroleum markets remainder my statement highlight the actions we believe congress can take to help restore balance to the petroleum markets increase applies of petroleum and lower the demand for petroleum we are confident that these initiatives will help reduce the price of diesel fuel which is been damaging the trucking industry and the crude oil which is equivalent of a fifty eight days supply of imported oil our nation for our nation or nine days supply of the oil consumed globally us currently deposited seventy thousand barrels of crude oil into th economist with the institute of international economics suggests that one of those factors was e s p ours renewed purchases of oil on the open market has also asked the administration to release oil from the s p r well we know the s p r does not contain enough oil to permanently alter the supply of crude oil in the marketplace we believe that strategic releases from the s p r could temporarily increase of supply of crude oil and hopefully help restore rational behavior to the petroleum markets this type of government intervention could drive speculators out of the market and help ensure that petroleum prices are once again driven by supply and demand we acknowledge that the rules governing the management the s p r are the subject of an international agreement with other developed nations this agreement limits our ability to use broader address market irregularities may be an issue that congress can further investigate we believe that temporarily halting the feeling of the s p r releasing oil from the s p r could have a positive impact on the speculative nature of today's drilling prices recognize however that this step in and of itself will not address the long term petroleum price and  i have put comments on comments on the record i just summarize by saying that other things to consider would be increasing domestic oil exploration increasing domestic petroleum refining capacity senior vice president and analyst for energy policy of oil in alternative energy at friedman billings ramsey and company in those senior roles he evaluates the impact of actions on investment refined petroleum products the infrastructure that supplies us oil took nearly a century and a half in multiple trillions of dollars to evolve just the last five years however man patterns of shifted dramatically since two thousand and three developed world oil consumption  essentially flat bonanno demand has risen by approximately eighteen percent simply put the world's emerging economies i ventured into their energy hungry adolescents i don't need to enumerate them here but an unfortunate confluence of geopolitical risks threatens the stability of existing currencies may be partly to blame producers may charge higher prices to compensate for value erosion increased speculative activity may play a small role as well though speculators may also have more of an effect on the velocity of oil prices than their absolute levels speculators are in the whole story commercial refiners are cruel cannot operate their businesses without stable supply they must bid up for oil at times of greatest perceived supply risk and many commodity markets behavior can accelerate in capacity utilization levels above ninety percent three million barrels of global spare capacity six million barrels a day demand which the global oil system at about ninety six percent of capacity and yet one well conceived us energy refiners from engaging in bidding wars and hoarding oil strategic petroleum we are primarily does insure against the risk of a catastrophic supply interruption to rise other values to other value to refiners assured of supply can operate at lower inventory and working capital levels surance of supply in the event of an emergency can deter hoarding in gallon by market participants to quantify the safety value of the s p r you can talk in storage levels of barrels but it might be better to express it in terms of the days of import coverage provided that is the number of days the number of barrels of storage divided by the number of barrels a nation imports each day import cover has fallen from the one hundred day range in one thousand nine hundred two estimates put in how you count it between fifty eight which i think we heard and it is high seventy and what you think the demand is and there's a variety of reasons for this deterred investment low prices conventional basins declining increased household wealth transportation is rising as well and the suggestion i would make is that basing any fill decision on days of import cover rather than absolute supply level and using a thorough and ongoing assessment of supply risks might make it easier to detour to determine fill rates and quantities and also easier to communicate that message in the importance that message to the american people and my view is that markets can sometimes provide useful predictions of future events especially markets as big liquid and broadly traded as the oil market and one might interpret one hundred seventeen dollars or even one hundred dollars oil as a risk premium that says maybe supply is riskier than we think and we should continue to fill the spro i realize that is not a popular view at this point in time spending this bill may do little however to affect prices long as the emerging world drives will demand their linkages worth noting u s imports feed overseas manufacturing chemicals and logistics demand for oil doesn't happen here could decrease demand by three hundred forty thousand barrels per day and an echo overseas in china alone could account for another two hundred fifty thousand barrels per day decline creating that surplus with a non emergency drawdown could affect price particularly the first time it occurs and especially if it happens with little or no fanfare and surprises the market on the other hand the price effect might be very small relative to the social cost of effectively burning the nation's safety net in our gas tanks or over the prices that might be temporary could be offset by demand growth and opec so i think i would conclude by suggesting that there's there's there is a risk that demand may start to soften of its own accord there are also opportunities one of these is that there is there is a real call now to build on the good work you did last year the energy independence and security act still greater standards and when you make it when you make a cocktail sometimes you marry to do things that are better to come up with something sweet and it's been suggested here today the notion that you can marry increase domestic energy production including biofuels are very big part of it with increased conservation i think might be the drink that cools the summer driving season in years to come thank you very much for your question thank you so much and and and thank you for bringing what you learn to t natural resources and invite environment for the office of the government the government accountability office he's been with the g a o for ten years and manage the teams on wide ranges of issues in the energy field we welcome you sir whenever you're ready please begin thank you mr chairman mr sensenbrenner and members of the committee i'm pleased to be here today to discuss how to reduce the cost of filling the strategic petroleum reserve as well as reduce the effect that filling reserve is currently having on oil prices the reserve now contains just over seven hundred million barrels of light oil and has about twenty seven million barrels of available can't pass city that deal he is currently planning to fill in the near term he has also been directed to create still an additional about three hundred million barrels of capacity with the price of light oil recently hitting almost one hundred twenty dollars per barrel this expansion can easily run into the tens of billions of dollars making barrels of oil off the market to put in the reserves but some point pressure on prices however there is no consensus on the magnitude of that effect and in jail it does not have a position on that in my testimony i will discuss things deal we can do to reduce the cost of expanding the reserve and to improve its effectiveness during oil supply shops i will also suggest something deal we could do in the near term to achieve both these goals while reducing whatever upward pressure on light oil prices it currently is going to first do we has not but should put heavier grades of oil in the reserves because a many u s refineries run most efficiently using heavy oil than what is currently in the reserves and be heavier oils are cheaper than light oils second put fewer barrels of oil into the reserve when oil prices are high and more when prices are low this would save a effect on the price of these light oils by putting them on the market now rather than taking them off to elaborate on these points our work indicates that about forty percent of all crude oil used by u s refineries is heavier than what is currently in the reserve many u s refineries run most efficiently using these heavy your oil and in practice this means that during an oil supply disruption many u s refineries would have to operate the low capacity if they used oil from the reserve this loss in capacity would reduce supplies of gasoline and diesel and exacerbate the economic supply disruption put fewer barrels into the reserve when prices are higher and more when prices are lower one way to do this is to buy a constant dollar amount of oil each month rather than buying a constant number of barrels this approach commonly referred to as dollar cost averaging is very similar to what many of us do when we put steady monthly contributions into our four one k plan reserve by immediately using the agency's existing authority to swap some of the reserves like barrels for have your barrel we did a reverse swap in one thousand nine hundred eight when it traded only heavy oil it had about eleven million barrels or eight million lower cost because a barrel of light oil trades for more than a barrel of heavy oil and certain swapping light for heavier barrels would put more light on light oil on the market now when light oil prices are as high as they've been and while recent history to conclude the strategic petroleum reserve protects our economy from oil supply shocks it has been useful in the past such as in the aftermath of hurricanes katrina and rita leave the reserve holds about fifty six imports but it will have to grow to maintain the same level of protection if demand for oil continues to rise however we have a large reserve now that can protect the economy from any but the most extreme supply disruption this allows us some flexibility to be smarter about how we added oil to the reserve our work shows of several billion dollars could be saved and a reserve made more efficient by putting heavier oils into the reserve as possible and by buying less when prices are higher and more when prices are lower both of these goals could be achieved in the near term if we used its authority to swap light or heavier barrels and this would take pressure off the record like oil prices we're currently facing thank you that's completely my oral statement i'll be opec and big oil have a weapon aimed at the heart of the american economy where seeing its effects and the failure of airlines we're seeing its effects and  the impact on truckers across our country we're seeing its impact on a dramatic rise in the price of fuel and we're going to see its effect on a continuing the decline in the american economy strategic petroleum reserve was constructed in order for the president to use it as a counter weapon in order to say to the world oil market that  refused to deploy this protective weapon which we have the strategic petroleum reserve meant to protect businesses and consumers across our country what in your opinion would be the impact  we as a country under the president's instructions stopped billing the strategic petroleum reserves so that we reduce the amount of oil being taken off the world market and begin to deploy upwards of forty million barrels of oil in the strategic petroleum reserve and made that announcement today the other witnesses and i have indicated it's difficult to quantify the amount of reduction in price that you would see i would go back to to the s p r exchange that we did in two thousand we put thirty million barrels of oil onto the market loaned it wasn't it wasn't a sale we put thirty million dollars alone and to put that in context i think at that time the world consumption in a year is about three billion give or take you know couple hundred million barrels of oil a day or a year ok so  i three billion barrel market we put thirty million barrels into the marketplace and the price dropped almost seven dollars a barrel and the price drop was immediate the price drop before the moved into the marketplace and stayed it stayed down very that seven dollars per barrel for about three weeks then the the u s s cole was bombed in the middle east and the price went back up but then it fell back down again when when  when the markets calm down so much of what goes on in the oil marketplace is just speculation it's panic it's exploitation of out of control and out of control a sense that the price is just going to go up and up and up with no stuff so to you with the trucking industry would truckers across the country like to see president stop filling the strategic petroleum reserve and request of the administration that they stop feeling the strategic petroleum reserve we don't know precisely what that impact would be but i think even the mere threat of doing that may have an impact on the speculators and  now is one where we're buying high at the very peak of the market the american people through the bush administration of buying oil at a hundred in one thousand dollars a barrel and at the same time that we should be selling our oil  into the global marketplace so say to the opec countries to say to the oil companies this is not going to last and those speculators will in fact receive that message very quickly and in my opinion respond in the consumers will start to see taxpayer money and we are raising prices to consumers at the pump simultaneously our findings are that you could reduce the cost of filling the reserve by adopting this practice of putting heavier barrels in there and if you did that right now a swapping whatever the effect on the price is if you swap light barrels out now for heavier barrels and more of them later you would alleviate that immediate effect on the energy is currently filling the spro at the rate of seventy thousand barrels a day and it proposes to increase that in august i find that timing curious to seventy six thousand barrels a day can anybody explain to me why at least during a portion of the hyde driving season we would increase the fill rate then you and i know there isn't a deal we witness that makes sense to anybody ought to ask ok i just added i would just add to that the not only is driving season for people going on vacation students returning to school but it's also when the economic activity starts to rise all of your christmas fall shipments start  going in the trucking activities actually picking up and so any activity down would cause fuel prices to rise during that time would not be good to peak trucking industry or trucking time for christmas shopping it's the advent of the peak by all  is it your testimony that that could have an effect not just on in terms of beneficially filling this role but also in terms of the price of oil and would it have a consequent effect on the price of gasoline yes we we have advocated long advocated the introduction of heavy oil into the s p r because it would make it more effective in the event of a of a supply disruption it's also been considerably less expensive it's over the last five years have averaged over twelve dollars a barrel less than than light oil so you could sell that the strategic reserve strategic reserve more cheaply by adding a lot heavier oil and make it more effective  and once again if you did that with a swap or you swap like oil now or have your own oil in the future you'd be selling essentially light oil out of existing caverns when they're empty then you would go and buy heavy oil to sell it that would have an immediate effect on like oil prices currently again i don't know the magnitude of that i find the idea fascinating the next question is so you keep saying we advocate this who's resisting  why and one of the reasons well we have recommended that the dia we study the maximum amount of heavy oil they can put and they agreed that they should they should put heavy oil in the amounts of at least ten  percent but so far to our knowledge they have no intention of doing so until they expand beyond the current level i'm happy i'll be happy to join you and maybe talk further maybe some of us in congress need to talk to him and get answers from them why they're not doing that  book you mentioned that speculation can in fact be a part of the current high gas prices one of the issues at least that mr berry is raising the trucking industry is concerned about is that if we were to at least stop filling the spro or perhaps even release some oil from the we could drive down we could drive out that speculation and maybe have a consequent impact on the price of gasoline i've heard it said that the price of gasoline is twenty to forty percent higher than it would be but for the speculation first question is do you agree that there is a possibility that we could have that effect and second are we also driving speculation by locking up a great deal of the supply that is potentially available the united states in the inner mountain west on the  elsewhere and saying well it's there but we're never ever going to go get it is that also driving speculation congressman seventy thousand barrels per day is a small amount relative to the global market it's possible to have have an effect but it's certainly not anything like the effect of a sale it's been described  nor is it anything like the effect your second question that would be immediately signaled if you were to open up some of the off limits areas because we have the best oil production technology in the world we have the best information management technology in the world we're really a very capable economy i suspect the market would take a look at our intent to produce some of our own reserves and take it very seriously on the other hand to be fair the effect of that production hitting the market is seven to ten years away from the go decision but speculator aren't speculating out in the future so that we have tracks all the way out to twenty sixteen right now that would probably start to change shape on the basis of that decision there anything else since i think every member of this panel republican and democrat alike wants to do what we can do to deal with the spike in gas prices right now is there anything else  you would suggest well the idea of tax holidays is is a symbolic move and a dangerous one i think the hard part is following the bitter medicine and trying to encourage consumers to learn more about ways they can save lot about how the s p r manipulation is going to impact the market what i would like to know is are there computer models out there and how sophisticated they are how much collaboration there is how much to do any kind of simulation of that much activity with that many players and that many variables in any model no matter how sophisticated may not be truly reliable you have a opinion  when we put the s p r oil at the exchange we did in two thousand and katrina and you see an immediate decline in price on that graph so so historically we do know of the impacts of using the s p r you can also different world globalization was still in its childhood adolescence pad a lot of changes in the currency relationship between the dollar and other currencies hard with a narrower headroom in a global capacity a do is that a lack of transparency in opec is one thing there's not a lot we can do about that the lack of transparency on our commodity markets is something we can do about it we made a huge mistake in two thousand and two when we modernize the commodities futures trading commission exchange commission and failed to exercise extent oversight to energy markets and so now we have a complete lack of transparency in the trading of energy commodities in futures on the over the counter markets we've had a series of continuous series of cases brought settlements signed about abuse of markets and we're told that the most sophisticated model that ever existed about these markets was enron's model and of course enron said you know it's supply it's this is that the other thing and it was cheaters and we've had plenty of court cases so if we want to learn about what's going on these markets  and congress passed in the past the ag bill last year a law that would have closed the enron loophole the president vetoed it for all kinds of other reasons and we're struggling to get that back in if you want transparency you need to have the commodities futures trading commission overseeing these markets they told us they had enough power and then we had the effort to to corner the gas market with amaranth and a whole series of things they don't know we simply don't know who trades what in this most important commodity that's the single most important thing you could do to fix the financial speculation problem has expired the chair recognizes  connecticut mr larson thank you mr chairman and thank you mr cooper i couldn't agree more with what you have to say a colleague of ours bart stupak a bill is well called the pump back that would do just that i believe the g a o even in its recent study came out and said the c f t c while it does have regulatory authority doesn't seem to have the broad exuberance needed or required to be able to look at and peel away especially when it comes to the over the counter market unregulated activities let me ask first dr brooks excuse me dr roscoe and then mr brooks whether or not you feel that that would better help in terms of transparency initiative that would be required as my grandfather and all them would say trust everyone but cut the cards i'm going to have to answer that for the record that was done in a team outside the energy group and i would hesitate to offer an opinion without first reviewing that report well if you could get back to them and as part of g a o i'd love to get that mr chairman for the record without objection i'll be included it also brings up a point and i think several i think it was mr chairman or mr blue in our might have mentioned that the largest consumer of energy of course is the federal government and that being the case if the federal government were to say with regard to speculation that the procurement of oil of petroleum for the entire federal system is not subject to speculation that you have to actually receive be in some volume of the oil market and put it into a time contract between the buyer in the cellar and by reducing the available supply to the market you might raise the price at a proposal like most in the market currently if we're purchasing x amount already but it's subject to the prices driven up by speculation why if you eliminated the speculators would it cost the federal government more and if it cost the federal government less we would be able to therefore release the strategic petroleum reserve or purchase more in a way that will be able to assist our truckers and everybody else throughout the economy i mean to the virtues of the idea makes sense the problem is finding a seller who will tie a contract at a time of high prices and say yes i will i will tighten lock this in with uncertainty decision makers within if we have unregulated markets that have no transparency and small businesses in oil deal are saying that it's a fraud and a sham and nothing more than a charade that's going on that causes our prices to go up while the people as you pointed out were concerned on making the money paper based on a declining value of the dollar and other volatility or other arguments that they may make and call that the marketplace isn't isn't that increase transparency is always good for markets also cautious small moves are generally good for markets particularly when there's a lot of capital in circulation i would agree that any move you can make to try to increase accountability without increasing the transaction cost and that's sort of the flip side of it the more you regulate something the more expensive it becomes to trade on that regulated exchange and this is a global world trade can go elsewhere so you have to balance the two ninety percent of the world's oil reserves are controlled by national oil companies are ok and so if you can have transparency in u s markets and on our producers you're only going to have a very small picture of what's actually going on in global oil market so it's just a it's just a caution that i would put out there is is that there is not transparency in the rest of the world and you only get you only get slice of what's actually going on and we actually when i was a deo we there is also not transparency on on oil data in general including demand data and employed i don't know why it clearly makes sense we did simulations that estimated the value of dollar cost averaging when prices were generally rising but volatile generally but volatile or staying generally flat but volatile as long as there's volatility in prices you can on a month to month basis save money and essentially fill the bill of the s p r at the same rate that you want you just have to pick the right target for than for the number of dollars you would have to adjust that target periodically because you don't know where prices will be in the future there are potentially billions of dollars to be saved as you expand the ninety s and and the the problem with that is that there's no real coordination between the deal we and deal why in terms of how to do that they could could still use royalty in kind of oil and adopt a a dollar cost averaging approach you would just feel i would deliver fewer barrels when prices are high and they would sell the remainder of the  barrels in the market and deliver more barrels when the price is low and you can still do it but it may be a lack of coordination or a lack of imagination most likely i would think you're right on that we've seen a lot of lack of coordination in rating agencies and if we can save dollars we appreciate your insight today as we trust these issues for there dr cooper your written testimony notes on page six that there is a quote disaster short find domestic refining capacity and the refinery shortfall has doubled to over three million barrels per day since the early one nine hundred ninety two what factors do you attribute the increasing refining capacity shortfall over that period of time and what do you think ninety s they went into effect in one thousand nine hundred five and the industry engaged in a series of strategic decisions about what to do and the central strategic decision was to reduce refinery capacity  decision was made not to upgrade certain refineries to meet the clean air act decisions were made and emerges were allowed to go forward which dramatically slash the number of refiners were down and you know their names exxon mobil mobil chevron texaco b p arco amoco conoco phillips all of those companies once were separate and now they're one and so clear decisions made throughout the one nine hundred ninety s about how to tighten the market there's a very good rand study which showed a complete change in behavior they no longer compete for market share on price and over that time period we've seen the shortfall increase from about a million and a half  day to three million barrels a day refinery profits have gone through the roof so this is the outcome of a policy of shorting the market strategic under investment in the domestic refining and every price spike we've had in the last six or seven years except this most recent one was always triggered by some complaints about oh we didn't have enough capacity they couldn't even do spring cleaning switching over from w fuel to some of us without it so the answer is i believe dingell and stu pac out a bill in that started to talk about a domestic refinery was are operating these refineries to meet military needs in normal times and diverting capacity to serve the market or oil industry will not build enough refineries in this country times almost up so in addition to the dingles to pass a bill just an optimal increase over the next five years what would you say it be wonderful how you're going to make them do it the oil industry won't do it you all them up here and they will tell you why they're not going to build any more refineries you cannot depend on the oil industry to meet our refinery needs gentle ladies time has expired the chair recognizes the gentleman from washington  state thank you while listening to the testimony i was reminded of what we went through on enron which was a learning experience and i remember a time where we had a northwest allegation go meet with vice president dick cheney to beg the administration to help us take some action in response to what was going on with prices going up through the roof roof and electricity and what we told the vice president was that there was obvious some in quote imperfections in the market manipulation going on we didn't have adequate oversight over speculation and manipulation and we told them that one third of all the power was turned off sort of similar to the refinery situation dr cooper talked about  at that time oil prices were going up a thousand percent and he looked at us you know what your problem is you just don't understand economics and we did the just they did not and we got absolutely taking the cleaners in the west coast while the administration sat on its hands and did nothing and i think that's reminiscent of what we're having here listening to this testimony where there is an abject lack of action to respond to this in any way and i just don't believe we are totally talk about a longer term issue we've talked about the short term issue talked about a longer term caroline talked about the need for research and development dollars to really develop a post carbon based economy requirements needs to be well understood and you know we're talking we're not talking about telephones widgets etc in terms of innovation we're talking about a major commodity based industry has a forty year infrastructure has a forty year life span and we are facing right now under business as usual carbon emissions a catastrophic event by two thousand and fifty beyond the doubling of c o two emissions in the atmosphere if we do not do something and do something now the the as i mentioned the infrastructure value that we're going to have to turn over in the next four years is twelve trillion dollars  we have we have significant balances we have to go from eighty percent carbon based fuels to not to and i agree with you carbon carbon free carbon light i would say perhaps carbon light is kind of the interim that we're going to have to support in order to get through those goals and by carbon a lot i would say quest ration is going to be critical in order for us to get there as well as natural gas because it's  on its applied energy r and d programs and i set aside the science office because while it's doing basic research energy research it's not strategic research is research for research sake for knowledge sake we're only spending maybe three three billion a year in energy are and i think a doubling of that is absolutely essential i think also a carbon price is essential and i know that the congress is debating the carbon price we can put it price on carbon we still don't have the technologies to produce affordable renewable energy at this point so we need the research and so a combination of increasing  oregon thank you mr chairman i would just like to clarify do any of you any of you feel that there is any question but that we should regulate petroleum and gasoline through the commodities futures trading market any of you disagree with that proposition  i don't i'm not sure i would use the word regulate certainly oversight on the part of this sound any reason to exclude them any longer again point because one member of the trucking industry it seems reasonable to me the proposal mr perry appreciate that would it be possible to check with your association about running it through the trap line and see where they are because they're pretty big player in this game thank you appreciate it and i i must say that i do appreciate the conference of nature of your testimony in particular i've had the opportunity in recent days who can only afford to fill up a third of the tank and making it real i thought was very important could you and i the notion that you have in terms of some specific things in terms of reducing demand which i welcome from the section that you had in your testimony touching what some feel is the third rail like should we take a look again at controlling speeds  because we did move in that direction thirty years ago to significant effect and even the notion of reducing i mean we've had legislation we've tried to fix this to be able to help what a p use so that we don't have the whole rig burning expensive diesel this is an example to me simple common sense items that ought to be employed in a heartbeat that makes sense to save  money you want to elaborate on that for a moment be happy to great personal risk i will tell you that it's our associations position that there should be a sixty five mile an hour speed limit and that  that would save a tremendous amount of fuel and i would venture to say that it would probably save as much as ten percent of our annual consumption and that's a big number  company has reduced our speed in december from sixty five to sixty four miles an hour in our trucks are governed so that we can with the computer and then here three weeks ago in response of the high price of fuel we reduced our speed even further to sixty two miles an hour and we did that a great risk because there's a shortage of truck drivers and we well we might be disarming in the unilaterally in the war to attract truck drivers but our drivers all understood the need to see the four dollar price at the truck stops and they willingly read voluntarily reduce their speeds and we've had wonderful compliance they get it they know this is a huge problem and they were on board with it but anti i don't represent is we talked about research and development a lot of common sense solutions coming from the users and the users are left out of all these equations and i think that the users need to be  clued in the research and development trucking companies are coming up fabulous ideas commonsense solutions and those should be corporate anti idling we're looking at battery powered we can't get the battery powered to work because with cabs doesn't work and has been a huge service and so all those are all examples of things that can be made and i appreciate that appreciate as i say the the comprehensive testimony that you've offered up we're working to try and fix that a p from oregon and i thank all of our witnesses i think this is extremely helpful hearing i think it's clear from today's testimony that president bush must deploy the strategic petroleum reserve in a lot of to send a signal to opec that we are going to stop begging to send a signal to the speculators that we are going to begin to take action against them and to send a signal to those who are already afraid of the impact on the trucking industry on the food industry and the airline industry and all of the industries of this dramatic rise in the price of of fuel that we are not going to allow a competition here to raise the price of oil have such a dramatic impact upon our economy poor people have to choose between fuel and food this is not something that america should allow to happen this is not something that president bush should sit on the sidelines and pretend he is powerless to do something about it president bush can call up the reserves over and over again to go to iraq he can deploy the strategic petroleum reserve as a weapon against opec and big oil and protect the american consumer and american industry here at home i think that's clear from the testimony that we heard here today we thank all of our witnesses for this testimony and we hope that president bush hears the plea of the american people this hearing is the tr