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From: Michigan@abraham.senate.gov
Sent: Monday, May 08, 2000 6:13 PM
To: Lenard; Joe
Subject: Re:Gas prices
 

Thank you for contacting me regarding issues surrounding the rising cost of gasoline. I appreciate the benefit of knowing your views.

The dramatic increases in fuel prices that we saw earlier this year, coupled with the inadequate response on the part of the Administration, are cause for great concern. Especially, considering that the three previous recessions were preceded by rising gas prices. The latest round of increases were driven by two events. First, in March 1999, the Organization of Petroleum Exporting Countries (OPEC) adopted production quotas. This action initially yielded an approximate $14 per barrel rise in the cost of crude, or a $.33 per gallon increase. Secondly, the rise in the cost of crude has discouraged refiners from purchasing as much new crude as they otherwise might have. They have relied instead on lower-cost crude and product stocks, thus reducing these stocks to levels lower than they have been in recent years.

Accordingly, I communicated to the President that he must engage OPEC nations in negotiations to increase their oil production. In response to that request and the outcry of many Americans, the Administration finally attempted to persuade OPEC nations that the sharp increase in prices, and volatility in world oil markets threatened the international economic climate. OPEC met on March 27, 2000 to discuss the possibility of increasing production to offset a shortage that now stands at more than two million barrels a day - although several OPEC members opposed increasing production. In addition, I joined many of my colleagues in voicing our frustration with the absence of a more explicit response from OPEC to recall the assistance which the United States rendered to some of the producing nations following Iraq's invasion of Kuwait in late 1990, and the Persian Gulf War which ensued. In our letter, we suggested an absence of reciprocity.

On March 28, 2000, OPEC and other producers agreed to raise production. Prices had already begun to soften out of anticipation that production would be increased. The OPEC ministers had some difficulty arriving at an agreement, in part because certain nations took exception to the active U.S. lobbying efforts. Yet, OPEC indicated that production would be boosted. Additional commitments from Mexico and Norway suggested that total announced additions to production will approach a sufficient amount for our nation’s needs. Moreover, OPEC indicated that its objective is to keep prices within a band of $22-$28/bbl. If prices should fall below $22/bbl, production would be cut. However, if prices rise above $28/bbl, production will be comparably increased.

Prior to the agreement with OPEC, Mexico and Norway, Congress took the initiative in addressing this issue. My approach has been multifaceted: in the short term, we can either increase domestic petroleum production, strongly urge non-OPEC allies to increase their exports, or temporarily reduce the gas tax, provided that the lost Highway Trust fund money is replaced using a General Fund appropriation.

The original proposals considered by Senate Leadership simply would have repealed some portion of the gas tax. However, those proposals would not have replaced the lost funds. I negotiated with the Leadership to ensure that the Trust Fund was maintained. Many in Congress believed that repealing the gas tax is the quickest way to provide relief to consumers.
All three case bills that I cosponsored (S. 2262, S. 2263 and S. 2285), would have specified that the amount of lost gas tax revenue that would have gone into the Highway Trust Fund automatically would have been redeposited into the Trust Fund from the General Fund. On April 11, 2000, the Senate voted on whether it should consider this option. This bill failed.

In 1998, I fought hard to increase highway funding for Michigan. The new federal transportation legislation, popularly called TEA-21, gave Michigan an additional $313 million to help fix state roads. Under the old transportation funding law, Michigan received only $512 million annually. Under TEA-21, Michigan receives about $825 million annually, which is a 62 percent increase. I have also authored a key provision in the law which transferred the 1993 gas tax increase, which was used for general government spending, into the Highway Trust Fund to be used exclusively for roads. None of this could have happened without the support of many constituents, and I want to reassure you that I actively will oppose any effort that could result in Michigan losing Highway Trust Fund money - thus, nullifying the hard work of myself and several other members of the Michigan Congressional delegation.

Congress also is examining other options to prevent further crises. One such option is increasing domestic oil production. Currently, the United States imports 56 percent of its oil. This trend is distressful in particular because during the 1973 oil embargo, the U.S. was only 30% dependent. Increasing domestic petroleum exploration is the only way to remedy this in the short term.

With gasoline prices now decreasing, albeit slowly, it is my hope that the near crisis has been averted. Having said that, please know that I will continue to monitor gas prices, and take measures to ensure Michigan’s economic well-being.

Again, thank you for your communication.

Sincerely,

Spence Abraham
United States Senate