Report Accuses Oil Companies of Cutting Inventory

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Associated Press

A nonprofit consumer rights organization released a study Wednesday accusing oil companies of intentionally sending reserves out of the Midwest to create shortages that sent prices higher than $2 a gallon in some parts of the region last summer.

“Pump shock is caused by manipulation of refiners’ stockpiles,” said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, a California-based group that commissioned the report. “And it’s foolhardy not to regulate and monitor those more regularly.”

The report claims that in a 90-day period last spring and summer, drivers in Illinois alone paid an extra $374 million for gas.

Paul Torstrick, a spokesman for the Illinois Petroleum Marketers Association – which represents gas marketers and some refineries – called the study “insulting.”

“I don’t think there’s any colluded effort on behalf of the refiners that service the Midwest to not adequately supply their customer base,” said Torstrick, who is also vice president of Gas City Ltd. Petroleum Products based in Frankfort. “They took a 90-day slice out of a very complicated business and they’re trying to microanalyze it to support their decision – and I don’t think that’s fair.”

Oil officials have said they’ve simply been passing on per-barrel price increases resulting from the Organization of Petroleum Exporting Countries limiting crude oil production. They also have said the price increases happened when they were still adjusting to mandates to create reformulated gas for some parts of the Midwest. That includes ethanol products now required in Chicago and Milwaukee, where prices were among the highest.

Study author Tim Hamilton said OPEC increases would have caused pump prices to rise more uniformly. He also said the companies have had plenty of time to prepare for reformulated gas.

Instead, Hamilton says he found evidence that Midwest refiners sent major reserves to other states and even out of the country before prices spiked in June. He said more than a third of the transfers went to Texas and Louisiana, oil-producing states that already have big reserves. Meanwhile, he said imports to the region remained about the same as the previous year.

Hamilton said he compiled the data using reports from the U.S. Energy Information Administration, federal Department of Labor and Commerce, U.S. Customs and other agencies.

Besides domestic transfers of fuel, he said he found that 280 million gallons of gas – much of it “Phase II” gas that could have been blended with ethanol for use in Chicago and Milwaukee – was exported from the Gulf Coast in the first quarter of 2000 to Mexico, the Philippines, Venezuela and other countries.

“Why didn’t he send it here?” asked Hamilton, a former gas station owner who has become a gas industry expert.

Torstrick said that’s the refiner’s prerogative.

“If (refiners) make a determination that it’s more profitable to ship those supplies elsewhere, they’re doing that for the benefit of their shareholders,” Torstrick said. “It’s a business decision.”

He said the Midwest is a logical place to ship – or keep – those supplies because it is one of the more lucrative markets.

Both he and Court are members of California Attorney General Bill Lockyer’s gas pricing task force – a panel formed to examine similar price spikes in that state. They said the Midwest report grew out of an investigation of West Coast supplies.

If the price-spiking trend continues, Hamilton estimates that Midwestern drivers will pay more than $3.6 billion more for gas each year than consumers in the southeast and Gulf regions.

By state, that breaks down to $834 million in Ohio, $736 million in Illinois, $777 million in Michigan, $508 million in Indiana, $387 million in Wisconsin and $381 in Minnesota.

Representatives of the Illinois Petroleum Council, a trade group that represents refineries, did not respond to a request for comment Wednesday.

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