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Skyrocketing Energy Prices
This afternoon, I'm speaking on the Senate floor about high energy prices. Unless something is done to make energy more affordable, the record-high prices will continue to reverberate throughout our economy, increasing the prices of transportation, food, manufacturing and everything in between. Skyrocketing energy prices are a threat to our economic and national security, and the time for action is long past.
One of the major causes of our energy crisis is the failed policies of the current administration. In January 2001, when President Bush took office, the price of oil was about $30 per barrel. The average price for a gallon of gasoline was about $1.50. Since President Bush took office, crude oil prices have nearly quadrupled, natural gas prices to heat our homes have almost doubled, gasoline prices have more than doubled, and diesel fuel prices have nearly tripled.
One key factor in price spikes of energy is rampant speculation in the energy markets. Traders are trading contracts for future delivery of oil in record amounts, creating a paper demand that is driving up prices and increasing price volatility solely to take a profit. Overall, the amount of trading of futures and options in oil on the New York Mercantile Exchange (NYMEX) has risen six-fold in recent years, from 500,000 outstanding contracts in 2001, to about 3 million contracts now.
Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. Many speculators simply buy and hold whole baskets of commodities including energy commodities, just like other speculators hold a variety of stocks in a mutual fund, in the expectation that prices will continue to rise. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX.
In January of this year, as oil hit $100 barrel, Mr. Tim Evans, oil analyst for Citigroup, wrote "the larger supply and demand fundamentals do not support a further rise and are, in fact, more consistent with lower price levels." The president and CEO of Marathon Oil recently said, "$100 oil isn't justified by the physical demand in the market. It has to be speculation on the futures market that is fueling this."
My Senate Permanent Subcommittee on Investigations has conducted four separate investigations into how our energy markets can be made to work better. Last December, we had a joint hearing with the Senate Energy Subcommittee on the role of speculation in rising energy prices. As a result of these investigations and hearings, for several years I have been advocating a variety of measures to address rising energy costs and the rampant speculation and lack of regulation of energy markets which have led to sky high energy prices:
• Put a cop back on the beat in the energy markets to ensure these markets are free from excessive speculation and manipulation;
• Stop filling the Strategic Petroleum Reserve until prices are lower;
• Develop alternatives to fossil fuels to lessen our dependence on oil; and
• Impose a windfall profits tax on oil companies that have profited from the unjustified price increases.
Because the administration has proved itself unable and unwilling to take the necessary steps to provide affordable energy supplies to the American people, it is up to the Congress to try to jumpstart a comprehensive solution to skyrocketing energy prices.
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Congress will have a bill in June that will add anther $1.50 to $8.00 per gallon for the CO2 tax. Dig deep, more taxes to come
I long for the day that Escalades will be drawn by horses or oxen.
Did you know GM will come out with a hybrid Escalade later this year? They already have a hybrid
Tahoe and Yukon.
The best solution for SUV's is to convert them to burn compressed natural gas ( CNG).
It doesn't need to be refined
We have a huge supply in North America The US currently supplies 85% of what we use, of the remaining 15%, all but 2% comes from Canada. With a pipeline from Alaska we could supply all we need with no imports.
It burns cleaner than either gasoline or ethanol and cost half as much as either.
Natural gas , which is mostly methane, is present wherever organic material is decomposing. It can be obtained from closed landfills and from sewerage treatment plants or even large dairy farms.
The Canadian company "Fuelmaker" builds a device that fills you CNG tank at home from your heating gas line.
Honda is the only auto maker that markets a vehicle to the public but both GM and Ford make them but only offer then to fleet operators. Ford made an F-150 pickup that was bi-fuel CNG and Gasoline. You switch from one fuel to the other with a flip of a switch mounted on the dash.
It was never offered to the public.
http://www.jaylenosgarage.com/video/video_player.shtml?vid=193319
Instead of trying to steal oil from Iraq we should spend 1 trillion dollars on converting to solar and wind power.
1 trillion is enough to convert all electric generation even adding in electric vehicles.
That's 2/3rd of our oil budget. the rest is chemical feedstock for plastic etc..
That's ALL of our coal electric plants replaced.
Since the oil companies have proven they do not have the best interest of the American people at heart, why not just nationalise the industry. End of problem.
Mexico has a nationalized oil company....would like to move there?
"Impose a windfall profits tax on oil companies"
Maybe I'm just too stupid to understand this but what does taking a company's profits do for lowering oil prices?
Using common sense I would think that if their profits are taken away they will just boost the price to maintain their margins. By the way, when did the government decide they have control over how much a company makes?
Yet I don't see one word from Levin about possibly getting our own oil, why is that option off of the table.
Tell me where I'm wrong.
The government started decided they could control how much corportations make under Theodore Rossevelt (about the first decade of the 20th century). only after several decades of the railroad industry completely hosing the public thouth. Apparently some people don't mind being gouged.
And that was in Teddy's day, what do you think would happen now if you said Microsoft's profits will be taken? They would move.
You never explained how this would do any good for lowering gas prices.
Econo? Can you answer the question posed by Unbias...or not?
You certainly did not answer it in this post.
BTW, I am not familiar with the idea that railroads "hosed" the public back in the 1800's. Could you tell what was going on there? I guess I was asleep during my Am History classes.
You folks need to read this Thomas Sowell piece. He is describing Sen. Levin to a T.
http://www.townhall.com/columnists/ThomasSowell/2008/05/13/too_complex?page=full&comments=true
Thank you for the link, Bladernr1001 -- it was more or less what I would expect from Townhall.com. I would ask you to return the favor by reading: Raymond Learsy's article here yesterday at: http://www.huffingtonpost.com/raymond-j-learsy/the-why-of-chokingly-high_b_101262.html and Paul Krugman's piece in the NYT, also yesterday, at: http://www.nytimes.com/2008/05/12/opinion/12krugman.html
I think you might agree that simple "supply & demand" is too simplistic an explanation for the problem with which we're faced.
Lem,
It is still supply and demand at work. If you pump less oil tha decreases supply. The antidote for this is to pump more elsewhere. How about ANWAR, how about the CO oil shale?
We have enough oil on our very own soil to not have to deal with OPEC. I blame the enviros for overreacting to the dangers of drilling for oil here. The enviors gave the OPEC folks the leverge to manipulate the price...at least temporarily. The can never do it for a long time because there are other producers of oil (Russia, Canda, Mexico, etc.)
The Learsy piece acknowledged several things:
1. If OPEC lets the prices go up too high they will be eventually undercut by other sources of energy.
2. The simple fact that decreasing the supply increses the price.
3. The simple fact that increasing demand tends to increse the price
To be quite honest wth you I am not sure what the point of learsy's post was. What good does it do for Bush to encourage oil prices to rise? He has his legacy and the rath of his own party to deal with if he is indeed trying to manipulate oil prices. Sorry that just does not make sense to me. If I assume big business owns Bush (like all you libs herecontend) how do think the big businesses that USE oil would think about Bush and the Repubs if they new he was manipulating the prices?
Large subsidies on batteries that can propel a plug-in hybrid 30-40 miles on electricity. Government program to lease and recycle these batteries. Mandate that auto manufacturers must produce 30-40 mile electric range plug-in hybrids. If the auto manufacturers need capital to retool/build factories give it to them. Subsidize the power generation sector in establishing smart-grid, vehicle-to-grid and clean generation technologies. Subsidize solar and wind projects that will have a huge reservoir of electrical storage in the plug-in hybrid batteries. Expensive? In the short-term yes, in the long term compared to the path we are currently following, NO. Can our current electric grid handle the increased draw of electricity? If the cars are charged at night(off-peak) the majority of the vehicles in the US could be plug-in hybrids without any change to the current system. Will any of these industries be able to do this on their own? No. Does it provide economic/national security? Yes. Better for the environment? Yes. Does any part of this plan need a technological breakthrough? A resounding NO. This is the ONLY way that we could maintain our current standard of living in a sustainable fashion. Is this plan pie-in-the-sky? Absolutely, for only one reason: Our legislators and administration are all about stuffing their buddies’ pockets full of money and their buddies wouldn’t like this plan at all.
Want to know more: http://www.pluginpartners.org/
How would plug-in hybrids help? More than 60% of the total annual miles traveled by the average American driver would be all-electric. That is a lot of gas we would not be buying.
Maybe not gas but what about all those oil fired electric plants you would have to build?
One problem with this. The energy to recharge the batteries comes almost exclusivly from fossil fuels. We would probably use even more oil and coal because some of the energy transferred to the batteries is lost in the transmission process.
That is probably why the hybrids are overtaking the electrics...among other reasons.
electric cars generate half as much CO2, as gas, even when the electricity comes from coal.
The key here is that it does not have to come from fossil fuels. There are options. Can't say that for the standard gas burning vehicle. There are lots of ways to make electricity - only one for making gasoline. I have the option of making electricity on the top of my garage. The price of solar panels is set to come down in a big way. With a plug-in hybrid I could get a few solar panels and a bank of batteries and I am no longer relying on anyone to get me to work or to the grocery store. I think this is what scares the bejessus out of the oil companies - people not needing them to continue going about their normal daily lives.
Dear Senator:
We have heard enough lip service from you and Congress. Do something or get off the pot. There is enough blame to go around. I think that all of Congress needs to start looking for new employment.......because all of the gentlemen's club are doing absolutely nothing.
Senator, Senator, Senator......
How on earth do you conclude that speculators are driving prices????? What economic principal supports that contention? The speculators are simply responding to the phenomenon.
What is causing prices to escalate is much simpler than that. It is called supply and demand. Demand for oil has increased dramatically due to the high growth in countries such as China and India. Also, the devalued dollar has had a huge impact on the pricing structure...... not speculation. I would say the guy over at Citigroup you quoted is more referring to that than speculators.
As to your fixes:
What cop and what would this cop do to stop "excessive" speculation....what would be the definition of "excessive"?
Stop filling the reserve....ok that would have some small impact. At least you employ sound economic principals here
Alternative fuels?....Oh,Oh, Oh.....teacher, teacher...I have one....nuclear. Let us build more Nuclear.
And my favorite...tax those "evil" oil companies. How will this lead to the production of even one more drop of oil???
Please see Enron and the deregulation of electricity in California. Peoples electrical bills shot up through the roof. It does happen. But your right supply will not be able to keep up with demand as if large populations like the Chinese and India all decide they need SUV's. I just hope there's enough left to run my Harley.
Enron simply took advantage of a screwy system divised by the CA legislature. The "deregulation" law was written such that power companies could only charge a certain rate for power generated within the state but could get more for power generated outside the state. The Enron folks simply exploited that by buying the cheaper CA power, sending to anohter state and bringing it back into CA charging the higher rate.
The CA pols and bureaucrats made this all possible.
"up to the Congress to do..." what a joke...
i seem to recall in the not too distant past that Congress had those oil barons in to discuss price gouging. I guess congress decided it wasnt price gouging - golly, ya think??!! - cuz nothing ever came of it. As usual, the NADA congress....
del8300
ie7
"Because the administration has proved itself unable and unwilling to take the necessary steps to provide affordable energy supplies to the American people, it is up to the Congress to try to jumpstart a comprehensive solution to skyrocketing energy prices."
Oh my, where to start. In the first place, Senator, bush and cheney deliberately put in place the conditions that spiked the prices, so of course they're not going to look for a way to lower them. Get a court to release the minutes of the "energy policy" meetings between cheney and the oil barons and you'll know how the scam was formulated.
In the second place, congress has done NOTHING to stop the bushies in any area. The Dems have caved on every issue. If you think the American people have any respect now for the Dem leaders, you are in la-la land.
Could you explain to me just how Bush and Co. put in place said conditions?
I have few that lead to this. Not allowed to drill in ANWAR, shut down the construction of nuclear plants, Regulations put in place tha make it virtually impossible to build any new refineries...shall I go on....and did Bush and Co. put all this in place????
I think the conspiracy lies with the enviros...not the Bush people.
They refused to place fuel efficiency limits that are reasonable on SUV's. I would have just banned them exept for commercial use. They have'nt done anything to promote the development of alternative energies. Our military uses as much gas as the rest of the country combined (with no emission standards).
Nukes are a dangerous dead end.
25 years of the worlds energy can be generated using nukes, then you start fighting over lower grade uranium ores. meanwhile a mountain of deadly waste is created that will threaten life for a million years.
Solar and wind a good for another 5 Billion years at which point the Sun kills us anyway.
bladern what part of 25 years of the worlds energy don't you understand?
France, little country: world: much bigger.
no breeder reactor has functioned with "incident".
All the commercial reactor deaths have been with breeder reactors. The tech doesn't work. Worse, the USA will only allow the "once through" nuclear cycle.
BushCo started the Iraq war to drive up the price of oil, duh.
Senator Levin, I'm still mulling over two articles I read yesterday -- Paul Krugman's "The Oil Nonbubble" (NYT) and Raymond Learsy's "The Why of Chokingly High Oil Prices: Bush Together with Saudi Arabia Spells Disaster for America" (here at HuffPo). Both challenged different notions I had concerning solutions to the high cost of oil and reminded me that we are often like the blind men describing an elephant based solely on the part of the animal we are touching.
While I agree wholeheartedly with your first three action points -- to regulate the market to prevent manipulation and speculation, to start acting like a powerful consumer by refusing to add to the SPR at inflated prices, and to make the development of alternate fuel sources a real priority -- I balk at imposing a windfall profit tax. Liberal as I'm proud to be, this suggestion strikes me as slightly un-American and, besides, it's been tried before and failed.
I would suggest to you, Senator, that you reexamine the subsidies being paid to oil companies even though the need for them have long since vanished. Removing these may not be as glamorous as a windfall profit tax, but may be just as effective (if not more so). Couple this with a sane incentive plan to move the oil companies toward real investment in alternative fuels and we might start making progress.
I don't want to see my tax dollars "invested" in alt energy.
Look at the debacle with ethanol.
Well, as a matter of fact, I wasn't advocating investing your tax dollars (or mine) in alternate energy, exactly. I was suggesting that we encourage -- in the form of tax incentives -- more R&D by the oil (read: energy) companies in new energy directions. We may never resolve the meta-debate concerning oil supply and demand, but I think it would be naive to believe the supply is endless.
For what it's worth, I absolutely agree with you concerning ethanol. The stampede to this pipe dream is not only a threat to the food supply but is also incredibly water intensive. Again, for what it's worth....
Windfall taxes will encourage oil companies to either not invest as much in infrastructure and exploration, or simply to leave the US. Speculators are long oil because the demand for oil is inelastic while supply appears to have peaked in 2005, also the weak dollar doesn't help.
The largest percentage of the increases in gas prices have happened since the Democrats controlled Congress in 2006. (since you want to play the blame game, Mr. Levin)
Allow oil companies to drill on the continental shelf and in ANWR.
Relieve the regulations so that we can build nuclear power plants.
Relieve the regulations and taxes so that we can build refineries.
Then, once we are energy independent, we can work more fervently for alternative fuels. Right now, it's pie in the sky and we can do the other things listed right away.
Jeez, you are one delusional apologist for BushCo; when we have blatant oil & war profiteers in the WH you still have the audacity to blame the opposition.
And only an IDIOT would buy the concept that TAXES has ANYTHING to do with the lack of new refineries in this country.
The problem with the lack of new refineries has less to do with taxes and much more to do with overly restrictive regulations and the environmentalist lobby. These two have made it so cost prohibitive that no new refineries have been built since 1976.
Not sure what the war has to do with the failure of both parties to develop a viable energy independence policy or world-wide supply and demand for oil. Certainly, speculators have to some extent exploited the instability of the Middle East to increase their profits, but that does not totally explain the recent steep increases in price. The war in Iraq is an issue but it has little to do with the current price of oil--you weaken your argument by conflating the two.
Are you out of your mind?
Oil started shooting up soon after bush came into office, and kicked into high gear after the invasion of Iraq .Besides, any efforts by Democrats such as Mr Levin would be blocked by Republicans or vetoed by bush.
Allow drilling in ANWR and coastal US? How about drilling the several thousand still unused oil leases in the Gulf of Mexico? The US sits on maybe 2-3% of the worlds known reserves, the Mideast sits on over 60% of them- we're not going to drill our way out of this
.
Nuclear power plants? Nuclear is one of the most expensive forms of energy there is. The Government has to insure it because no insurance company in their right mind would go near it. It's really not a matter of regulations as much as cost. Besides, would you really want LESS safe nuclear power plants?
New refineries? Over the last 20 years or so refining capacity has increased by about 5 times- not from new refineries, but expansions to existing ones. Do you really believe that if the oil companies wanted new refineries they wouldn't get them? Especially with the current administration and big oil's army of lobbyists?
Having said that, I say sure, drill everywhere we can, maybe even build a couple Nukes, and refineries , but at the same time invest heavily in wind , solar, hydro, geothermal, ; increased CAFE standards, electric and plug in hybrid cars, and energy efficiency in general.
Stop filling the SPR why? The price of oil is not going down, we need the oil stockpile for strategic purposes.Develop alternativeto fossil fuels- ok Senator what's stopping you? Put a windfall profits tax in place- brilliant-discourage industry from drilling- sounds brilliant, right our of Jimmy Carter's playbook. Now- UncleRico- what are these "unused leases " in the GOM? Over 50,000 wells have been drilled in 2/3rds of the GOM and it suplies 30% of our production. Oil companies are doing their damndest to find thigs to drill- perhaps you could help them? 97% of federal lands are off limits to drilling. Open em up. Let's drill the Eastern Gulf (yes offshore Fla where foreign companies drill closer to the US in Cuban waters thatn can US companies in our own back yard). What about the billions of proven bbls in offshore CA?
Well, gee, timothe, I hardly know where to begin...
First -- even if it wasn't an utterly irresponsible idea -- I would absolutely oppose drilling in ANWR until someone could explain to me why that oil would go direcly to Asia instead of US of A. I know we're in a global ecoomy, but come on!
Second -- the first regulation we should demand to see "relieved" is the amount of liquid (scotch, beer, chablis) we can carry in micro ounces in zip lock bags onto airplanes. After we settle that, we can discuss where in your back yard you intend to the store to waste from nuclear power plants.
Third -- I can't for the life of me understand why a company that makes $347 million a quarter can't afford to build their own refineries without a little tickle under the chin by the government... or, for that matter, why they'd want to since many of the refineries we have aren't running to capacity and some have been closed.
To tell you the truth, tim, everything you suggested works to the benefit of Big Oil; I assume you're under the impression that what's good for Big Oil is good for America, but it ain't so.
Why it makes no difference where Alaskan crude goes.
If your Uncle Max gave you a one hundred dollar bill for Christmas and you decided to put it in the bank, would you write down the serial number so you could be sure they gave you back the same one hundred dollar bill when you withdrew it? Well, not if you’re over 10 years old. You realize one one hundred dollar bill is no different from any other.
The same holds true for a barrel of oil. It cost money to move it, so it goes to the closest refineries that can take it.
If US West Coast refineries are running at capacity it’s cheaper to sell the oil to Japan and use the money to buy oil from Mexico or Venezuela than it is to take a super tanker all the way around the tip of South America to get to Gulf Coast refineries.
No matter where the oil goes, there is an additional supply of oil on the world market and that should cause the price to decrease.
An additional benefit is we are reducing the US trade deficit by the price of the oil whether we use it ourselves or sell it.
If you do a demand driven growth calculation of oil from $10 in the late 90's to now at 2% per year , oil should be around $20 per barrel. The weak dollar (due to a 75% growth in the US govermnemnt as measured by the increase in government debt), our belligernt foreign policies (go ahead, you can invade any oil-rich nation you want and nobody cares), and speculators (probably the smallest portion of price above the $20 demand growth price) are probably the biggest culprets. Some countries have actually been down in demand since 1980 (France, -18%). The largest projected marginal inreases in demand are in heavily subsidized countries, like China where gas is 10 cents per gallon. Venezuela, Mexico and other producing nations are in this subsidy category. If those subsidies are gradually lifted, oil could sink like a rock.
US exploration and expansion of our refineries will have absolutely no impact on oil prices. We can increase these categories by potentially 1% but we can reduce our dependence on oil by 100%. Support for alternative transportation energies, heavy tax's on fuel at the pump, quit exporting of diesel fuel by US refiners, diplomatic and economic efforts to reduce subsidies in some foreign countries, getting out of Iraq and most the the Middle East, and strong dollar policies (by fiscal restraint and paying off the national debt) will push oil pices down where they belong, though maybe not all the way to $20.
Mr Levin,
Please tell me how exactly a windfall profits tax will lower the cost of oil? Let's see cost increase so therefore sales price will likely increase.
If the company decides to eat the added cost then agian explain hwo the price goes down. A windfall tax will most definitely lower the cost of oil but it is likely to increase the cost of oil.
Not too mention if exxon gets hit with a larger tax bill it may adversely affect its stock price. I know many here will be happy to hear that but what abtou all those pension funds and mutual funds that will be lowered in vlaue becuase they are invested in oil? Now the price of gas will be the same and the value of ones pension or 401k will be lowered. Hurrah!
Mr. LEvin can you or one of you liek minded friends please defien a windfall tax. Are you going to use real dollar amounts? Percents of sales? Which profit line will you base this one? Gross? Operating? Net Income? Other?
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