Contact:  Gene Guilford gene@icpa.org or Chris Herb chris@icpa.org
For Immediate Release  March 30, 2011

ENERGY PRICES RISE AND WASHINGTON'S RESPONSE - WAIT FOR TOMORROW

The President of the United States this morning evidenced a total lack of familiarity with the causes of high energy costs in the nation, and an equally shocking lack of regard for what can be done to lower those costs now.

It's all well and good to talk about what can be done by the end of the decade or by 2035 or some other long-off date and time. It's yet another to have the vision to do something about TODAY'S energy issues TODAY while the nation may or may not be in some transition to some other place.

Electric cars may, just may, someday play a serious role in our transportation mix but do not today and will not until there are sufficient breakthroughs in battery/storage technology and we have sufficient electric generating capacity [electricity generated from what, by the way...] to energize the cars. Converting trucks to natural gas, as has been proposed by Congressman Larson, T Boone Pickens and others, involves billions in taxpayer subsidies that the nation does not have and further, there is no substantial infrastructure with which to fuel the vehicles across the nation. Further still, natural gas sold for $14 @mbtus just two years ago and now it is $4 - can government also predict that it won't return to $14 two years from now?

Mr. President, today you said we needed to reduce our reliance on foreign oil by 1/3rd by the end of this decade. Last week in Brazil you touted Brazil's new offshore oil discoveries and said, "We want to help you with the technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers." Which is it Mr. President - reduce reliance on foreign energy or become foreign energy's best customers? Yes or no - on or off - where are we headed today?

America needs a broad-based, flexible energy plan not one driven by politicians seizing on the flavor of the month with no vision or no memory. America needs a 50-year energy program that escapes the meddling of politicians bent by the winds of the latest special interest craze.

However, we do know that rising standards of living also lead to longer life spans and a higher quality of life. We should not forget that before entrepreneurs found ways to harness the power of oil and coal, Americans were very poor. Entrepreneurs did that, not governments. The free market gave this nation the highest standard of living on the planet and yet the free market is the one thing this President appears to not trust nor rely on to produce the energy this nation needs for its economic and national security.

Mr. President, you can do something about American's present energy problems TODAY - not by the end of the decade or by 2035. Actions from Washington could reduce today's energy costs. Washington needs to stop using energy as a political whipping boy for every special interest's different agenda and get on with reducing our energy costs right now, today. According to an October 28, 2009 report by the Congressional Research Service “U.S. proven reserves of oil total 21.3 billion barrels and reserves of natural gas are 237.7 trillion cubic feet. Undiscovered technically recoverable oil in the United States is 145.4 billion barrels, and undiscovered technically recoverable natural gas is 1.162.7 trillion cubic feet. The demonstrated reserve base for coal is 489 billion short tons, of which 262 billion short tons are considered technically recoverable.” America has more than 100 years of oil supplies within our 50 states and offshore and America has the ability to produce more energy from America, by Americans, for Americans if only the Federal Government and an aimless energy policy would get out of the way.

ICPA issued this last December, and issues it again today.

1. National Energy Policy / Crude Oil. With crude oil now above $90 per barrel on world exchanges we have no further to look than the Obama Administration's decision to retain the ban on deep water drilling offshore in the United States until 2017. The signal that decision by Interior Secretary Salazar sent to world energy markets is that the United States does not intend to help itself out of the imbalance of roughly 65% imported crude oil for the next seven years. Taking this amount of producible domestic crude out of production has worsened the current balance between roughly 85 million barrels per day of world production and 83 million barrels per day of world consumption. Tightness of world crude supply and demand plays a crucial role in driving world crude markets higher and thus far OPEC has been unwilling to make up for what the U.S. has decided to take off the market. Congress needs to expedite oversight of deep water drilling projects, overhaul the Department of the Interior's Mineral Management Service, and get the United States back into deep water production of domestic crude oil. If this government wants lower fuel prices, let the United States produce more crude oil. We can, we should. The Obama Administration likes to point to unused leases as their defense against issuing new leases as though the nation cannot figure out - energy exploration needs to occur where there is energy - not where the federal government merely grants us the authority to look where we know there is little likelihood of finding anything.

2. National Monetary Policy / The Fed. As ICPA wrote in the op-ed piece of November 9, 2010 entitled, The Fed Tax," it is impossible for any rational economist to ignore the role a dramatically weakened U.S. dollar currency has on energy prices. The Federal Reserve has pumped over $2 trillion dollars [$1.7 trillion in QE1, $600 billion in QE2] into the nation's economy and this dollar inflation has contributed to dramatic increases in food and energy costs. Coupled with sky high $1 trillion + federal budget deficits, the nation is on a flood tide of cheap money that only makes everything priced in dollars more and more expensive.

Crude oil has increased by more than 30% since this last summer, as everyone who shops for food already knows, food prices are up dramatically based on the prices of wheat, corn and soybeans having increased in price more than 90% over the past year. Energy prices have seen similar shocks to the family pocketbook. Heating oil inventories are at a 27 year high, the weather reflects that between this year and last year we should have a decline in heating energy demand – yet heating costs are rising. Gasoline inventories are higher than their five-year average. Demand for gasoline by consumers is down 2.7% between October, 2009 and October, 2010. Energy inventories are up, consumer demand is down – yet we’ve all seen gas prices increasing at the pump almost daily.

All of us see food and energy prices rising – in apparent defiance of anything to do with the normal fundamentals of supply and demand. Americans are paying more for essential commodities due to a "phantom tax" that Congress never passed and the President never signed. These increased costs from the phantom tax are courtesy of the Federal Reserve which has pumped out trillions of dollars in an attempt to reinflate the nation's economy. As more dollars flow out of the Fed and into the money supply, the less each dollar is worth; and as the Fed continues to drive down the value of the US dollar, everything that is sold in dollars continues to rise in price.

Specifically, every penny at the gas pump is a $4 million per penny per day, or a $1.46 billion a year tax. The 41-cent increase in wholesale gasoline prices just between July and December, 2010 is equivalent to $164 million a day tax increase - or $60 billion per year. For distillates, the increase of 46 cents a gallon since June is equal to a tax increase of more than $70 million a day or $25.5 billion. The two together have given us a tax increase of more than $85 billion (annualized) since June and no one voted on it, and it has added nothing to the government's budget. And then there's copper, lumber, cotton, silver, and food.

Coupled with the wrong signals sent by our Federal Government concerning domestic energy production, Fed monetary policy also acts as a firm driver of higher energy costs through maintaining a weak U.S. dollar.

3. The Magnet of Safe Havens / The Flight to Commodities. If you have a Federal Government signaling it is taking millions of barrels of domestic production out of world supply and then have a Federal Reserve debasing the world's reserve currency that is the keystone of world energy prices, you have the perfect coupling of two drivers of investment in commodities whose prices should rise and thus create a safe haven for investment to defeat the devalued dollar. This is now evidencing itself in everything from gold prices to wheat prices to crude oil prices to copper prices.

Position limits are one of the more controversial initiatives required by the Dodd-Frank financial reforms passed last July. Lawmakers directed the CFTC to pass rules limiting certain commodities traders’ size in energy, metals and agricultural commodities traded on and off exchanges, such as the NYMEX, where energy and agricultural commodities are traded daily. In effect, position limits may have the effect of preventing investors from flooding cash into commodities and inflating their prices - some believe.

The CFTC aired a draft position limit proposal a few weeks ago that would have set speculative limits at 25 per cent of deliverable supply for spot commodity contracts. Staff at the CFTC estimated that at most 70 traders in agricultural commodities, six in base metals, eight in precious metals and 40 in energy contracts would be affected by the new spot-month limits. The internal debate within the CFTC and the battle that will be waged in Congress over this issue puts the CFTC's budget within the crosshairs of Congressional appropriators looking to weaken the CFTC's ability to not only enforce the authority it has held since the 1930's, but also the specific new authorities in this area granted it by the Dodd-Frank legislation passed last spring.

Will position limits regulated by the federal government have any effect on energy prices by restraining investors' ability to buy into the market versus those commercial entities who are in the commodities market with the intention of actually taking delivery of fuel? We have yet to see. The CFTC's proposed regulation governing energy commodity position limits closed its public comment period on March 28th.


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Our Federal Government has sent all the wrong signals in the evolution of national energy policy and those negative signals are directly resulting in higher energy costs and are directly threatening the weak and floundering economic "recovery," where the real effective unemployment rate is 17%, where 1 in 7 Americans lives below the poverty level, and where now the number of Americans receiving food stamps is now over 42 million, or 14 percent of the population, an increase of 58.5% since August, 2007.

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ICPA represents more than 576 Connecticut based independent businesses. These businesses serve more than 680,000 heating fuels consumers, employ 13,000 Connecticut citizens at the majority of our state's 1,600 motor fuels outlets and 600 heating fuels retailers. ICPA's offices are at 10 Alcap Ridge, Cromwell, CT  06416.  For more information about today's Press Release, contact Gene Guilford or Chris Herb.