Green Gas Reformulation, OPEC Had Little Role, Contrary To Refiner Claims

Chicago, Illinois — The non-profit Foundation for Taxpayer and Consumer Rights released today a landmark study that it commissioned from petroleum expert Tim Hamilton, who has over twenty five years experience in the industry. The report shows that oil refiners’ manipulation of supply and inventories is to blame for the price spikes in Midwest gasoline prices during the Spring/Summer of 2000. ( Click here to download the full report )

The study, entitled “The Causes and Effects of the Price Spikes In the Midwest During 2000,” finds:

• just prior to the price spikes, hundreds of millions of gallons of gasoline were shipped by Midwest refiners to other parts of the country and exported to foreign destinations — inventory manipulations that precipitated the shortages which led to the price spikes;
• despite repeated oral and written assurances to the Environmental Protection Agency (EPA) that inventories were at adequate levels, the oil companies drew the inventories down to critically low levels and chose not to restore the inventories;
• OPEC production cut-backs and new, greener gas reformulation had no significant impact on the price spike;
• an estimated $374.4 million was artificially tacked onto pump prices during a ninety day period in the State of Illinois alone.

“We must close the loopholes in anti-trust laws that have allowed a small group of refiners to manipulate inventories and artificially drive up the price of gasoline,” said Hamilton. “When sorting out policy questions about the high-price of gasoline or of heating oil, there must be a new focus on the role exports play in price spikes and the creation of artificial shortages.”

“This study shows that oil refiners abused the public’s trust and used the introduction of greener gas as an excuse to raise prices and profits while transferring gasoline to other states and nations in order to bilk motorists,” said Jamie Court, executive director of FTCR. “If the nation had one standard for cleaner fuel instead of many, no group of regional refiners would be able to manipulate supply because they would face increased competition from refineries in other areas. This study confirms that gasoline exports must be regulated if artificial shortages are to be prevented in the future.”

Using a private firm to search customs records, the study was able to locate over 280 millions of gallons that was loaded onto ships by Midwest oil companies and exported to destinations such as Mexico, the Phillipines and Venezuela in the first quarter of 2000. An additional 375 million gallons of gasoline were transferred to other locations within the country. The direct exports out of the Midwest were increased over the same period during the previous year (1999), when there was no shortage in the area.

FTCR and the author jointly recommended that state and federal officials, in response to the study, launch a bipartisan effort to:

• adopt a single nationwide standard for gasoline formulations so oil companies can no longer manipulate inventories in a manner that creates price spikes;
• close loopholes in antitrust laws and commodity trading laws to provide for prosecution of individuals and corporations involved in the creation of price spikes; and
• pass measures to control the flow of crude and refined product exports to ensure that the multinational oil companies do not abuse the interests of this nation and its citizens.

FTCR is a non-profit, non-partisan public interest group that employs attorneys, strategists, public educators, and grass roots activists to advance and protect the interests of consumers and taxpayers. Based in Santa Monica, California, FTCR’s day-in, day-out consumer protection and advocacy work embraces a wide variety of issues affecting the daily lives of millions of Americans.

Tim Hamilton is an internationally known petroleum industry consultant who has operated gasoline stations and studied oil company marketing practices since 1974. From his office in Olympia, Washington, Mr. Hamilton has provided input and testimony on gasoline pricing issues to nearly every state Legislature and Attorney General in the West Coast region, the Federal Trade Commission, US Department of Justice, US Department of Energy, and the Regie de l energie of Quebec, Canada on behalf of small businesses in the petroleum industry. Since 1985 Mr. Hamilton has published the AUTO BULLETIN, a nationally know trade journal covering gasoline prices, environmental issues, marketing practices, and other subjects of interest to the petroleum industry.

This report would not have been possible without the generous financial support of Consumer Watchdog, the Agua Fund of the Tides Foundation, and Public Interest Projects.

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