Oil Companies Created Midwest Gap, Group Says

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Chicago Tribune

A California-based consumer watchdog group on Wednesday accused the major oil companies of creating a gasoline shortage that sent prices soaring to more than $2 a gallon in Chicago and Milwaukee by shipping inventories to other states and abroad.

The Foundation for Taxpayer and Consumer Rights made the charge in a study of Midwest gas prices released in Chicago. The report contends that consolidation in the petroleum industry has allowed oil companies to take advantage of demand for numerous grades of cleaner-burning gasolines in certain markets, such as the Midwest.

“Pump shock is caused by manipulation of refiners’ stockpiles,” said Jamie Court, executive director of the not-for-profit taxpayer group. “If the nation had one standard for reformulated gasoline, no regional group of refiners would be able to corner the market.”

John Felmy, chief economist for the American Petroleum Institute, which represents the big refiners, challenged the report, saying: “They are only showing half the equation.”

Felmy agreed with the group’s report that 375 million gallons of gasoline were shipped out of the region in the first three months of 2000. “But at the same time, 2.29 billion gallons were shipped in,” Felmy said.

On net for the quarter, 1.915 billion gallons were shipped in, and the net in-flow for the region increased 19 percent over the same quarter in 1999, Felmy said.

“Yes, the inventories were low,” Felmy said. “But we had to draw down the tanks to get in the new reformulated fuel.”

A more definitive explanation for regional price anomalies this summer is unlikely anytime soon. The Federal Trade Commission is conducting an investigation into the summer’s Midwest gas price spike, but it is not expected to be completed–or made public–until sometime after the November election.

In an interim report in July, the FTC cited several potential causes of the spikes–ranging from high crude oil prices, to new regulations for summer-blend reformulated gasoline in high-ozone urban areas, to the break in a key pipeline in March. But the report failed to isolate any one reason for the hikes.

Tim Hamilton, a petroleum consultant who authored the taxpayer group’s study, said consolidation in the industry has made it easier for competitors to act in concert, without technically violating the law.

“They don’t need to take the risk,” Hamilton said. “This is tacit collusion, a small group of competitors tracking each other.”

Hamilton’s report noted that the companies share storage tanks and
pipelines and are regularly required to report data to the Energy Information Administration, making it impossible for them not to be aware of their competitors’ actions.

According to the report, neither higher OPEC prices nor the higher cost of refining special blends of ethanol-based reformulated gasoline drove prices. Instead, the reason was speculation over tight supplies, Hamilton said.

“You’ll notice that nobody ran out of gas,” Hamilton said. “This was a paperwork shortage.”

The group urged adoption of one national standard for reformulated gasoline, saying that it would prevent oil companies from creating spikes. The group also called for government controls on the flow of crude and refined oil exports.

Tom Mueller, a BP Amoco PLC spokesman in Chicago, said that oil companies were not responsible for the spikes. He said he does not think more government controls are the answer, either. “Historically, government controls have proven not to work,” he said.

But he agreed with using a uniform grade of cleaner burning gasoline.

“There are 12 different grades in a 350-mile radius of the Midwest, and our pipeline and distribution systems aren’t designed for that number of products,” Mueller said.

Consumer Watchdog
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