Las Vegas Business Press
News of the Federal Trade Commission exonerating oil companies against charges of violating antitrust laws and collusion in several Western states didn’t Surprise one local official who participated in the three-year investigation.
“I’ve participated in FTC investigations over the years. including this last one and I’m sorry to tell you most Studies of this type are absolutely politically driven,” said Jack Greco, chairman of the Nevada Gasoline Retailers Association. “In fact, me and my colleagues at the time knew the FTC study would have an (Al) Gore result and a (George W.) Bush result. Bush is now in charge of the presidency. He’s an oil man. He’s made it clear to the oil companies he’s taking a laissez faire stance in their business.”
Greco’s participation in the FTC investigation, which covered wholesale gasoline markets in California, Arizona, Nevada, Oregon and Washington, included submitting data for a report authored by Tim Hamilton, petroleum industry consultant, and commissioned on behalf of the Foundation For Taxpayer and Consumer Rights.
The report, “The Causes and Effects of the Price Spike in the Midwest during 2000,” concluded that the price spike in the Midwest was not the result of increased refining costs required in the production of cleaner burning “green fuel,” contrary to statements made by oil company officials.
Furthermore, the report says the main cause for the price spike was a “draw down” in conventional and reformulated gasoline (RFG) inventory, levels as a result of “actions or, in some cases, inactions of the oil companies doing business in the Midwest and Gulf Coast regions just prior to the price spike.”
Citing the U.S. Energy Information Administration as a source, the report lists several actions taken by oil companies that resulted in draw downs of gasoline supplies including “transferring 375 million gallons of gasoline out of Midwest storage to other parts of the nation during the first quarter of 2000; and transferring about 54.6 million gallons of RFG gasoline south during April through June 2000 at the same moment the RFG price spike was underway in Chicago and Milwaukee.”
“The increased prices at the pump,” the report continues, “were nearly pure increased profit margins for the oil companies.”
In other words, short supplies equals higher profits to an oil company and surplus supplies means lower prices, according to the report.
Finally, the report recommended a better “understanding of the nature of the (oil) industry.”
“It was not the government, but rather the industry that chose to close a significant number of refineries following decontrol in 1981 establishing the tight market that exists today,” the report concluded.
Mitchell Katz, an FTC public affairs officer, told the Business Press the commission is not releasing any information the investigation other than what is contained in last week’s press release.
According to the commissioners mentioned in the press release “the investigation produced no evidence of horizontal agreement on price or output at any level of supply.”
While the FTC acknowledged the existence of “zone pricing” in the Western states, whereby refineries “set uniform wholesale prices and supply branded gasoline directly to their company-operated and leased stations within a small but distinct geographic area,” it said, “the investigation found no evidence of collusion between oil companies in furtherance of this practice.”
The Commission voted unanimously to close the investigation.
Greco says the proof is in the petroleum. Should gas prices almost double and reach $3 this summer, it would be an unprecedented move at a time when current prices are at their highest in almost 16 years.
He puts a $3 gallon of gas in perspective. Three dollars at the pump this surnmer would be four times higher than after Iraq’s invasion of Kuwait in 1990 and ten times higher than after the 1989 wreck of the Exxon Valdez which spilled more than 11 million gallons of Le crude oil in Prince William Sound, Alaska.
“If ($3 gasoline) occurs because of the blessing of this administration, then that represents collusion on part of the president and the oil companies the likes of which haven’t been seen since the Teapot Dome Scandal in the 1920’s,” Greco said.
Teapot Dome was the popular name for a scandal during the administration of President Warren G. Harding. The scandal involved the secret leasing of naval oil reserve lands to private companies.
Carolin Keith, Western manager of public affairs for Exxon-Mobil, said the escalating price of gasoline can be attributed to the laws of supply and demand.
“In the Western region, we produce as much gasoline as we consume,” she said. “When those supplies get tight like they are now, and demand continues to rise, the price goes up.”
Keith had no response to charges of greed fueling past and present price spikes.
“We’re not unlike any other product. We have to react to supply and demand,” she said. “Adjusted for inflation, the price of gasoline still has increased less than the average consumer product. It’s the best bargain going.”
Ed Spaulding, Western public affairs manager for Chevron, said oil refineries in the West are operating at maximum levels and barely keeping up with demand.
“It’s supply and demand forces that end up setting the price at the pump,” he said. “As summer driving season kicks in, refineries are challenged to keep up.”
Similar to the lack of power plant construction in California, partly responsible for that state’s current power crisis, Spaulding said refinery capacity in the West has been stagnant with no new refineries built in more than ten years.
“As far as oil companies being charged with collusion, those types of criticisms remain unfounded. In the many inv estigations at the state and federal level I there’s never been any kind of finding of such behavior,” he said. “Prices are market driven. Supply and demand.”
“In our own Congressional investigations, we’ve found that prices of gasoline are determined by the oil companies,” he said. “When oil companies say gasoline is I market driven,’ that’s another way of saying that they collectively decide what price to sell it for.”
Ron Planting, manager of information and analysis at the American Petroleum Institute, said that while supply and demand imbalances are in fact part of the reason for higher gasoline prices, most of the maintenance being conducted on the country’s refineries is almost finished. The latest figures show about 8.6 million barrels of crude oil per day being produced across the country, according to planting.