Oil Companies Living up to Expectations

[/ dave /]

Senate Probe Shows Gas Price Hiking
Mon Apr 29, 5:49 PM ET

By H. JOSEF HEBERT, Associated Press Writer

WASHINGTON (AP) - The concentration of oil companies and refineries 
among a few owners allows producers to manipulate gasoline supplies and 
force up prices to increase profits, a congressional report concluded 
Monday.

The investigation by a Senate subcommittee found that intentional 
reductions in gasoline supplies tightened fuel markets and helped 
produce some of the sharp price spikes over the past three years, 
especially in the Midwest.

"In a number of instances, refiners have sought to increase prices by 
reducing supplies," says the 396-page report released by Sen. Carl Levin 
(news, bio, voting record), D-Mich., chairman of the Senate Permanent 
Investigations Subcommittee.

Levin said "the concentration of oil companies is so heavy that it 
allows them to manipulate supply ... without fear of competition," to 
the detriment of consumers.

Levin urged tightening of antitrust laws and a tougher review of oil 
industry mergers (news - web sites ) to curtail market abuses by today's 
dwindling number of industry players. He noted that in some European 
countries companies are required by law to keep in storage a minimum 
amount of oil or gasoline to avert shortages.

(snip)

The report, written by the Democratic staff of Levin's subcommittee, 
cited several internal memos, dating back to 1998, from major oil firms 
that outline a general strategy of using supplies to influence prices.

An internal "confidential" memo written in 1999 by BP Amoco -- now known 
only as BP -- suggests "significant opportunities to influence" the 
balance of supply and demand in the tight Midwest gasoline market to 
assure higher prices.

Among the potential actions cited in BP's "Midwest, Mid-Continent 
Strategy" memo was to reduce refinery production, ship supplies to 
Canada, fill limited pipeline capacity from the Gulf to the Midwest with 
products other than gasoline, provide incentives to other producers not 
to provide additional gasoline, or lobby for environmental regulations 
to slow fuel shipments.

It's not known what, if any, of these actions were followed up.

Last summer, the Senate report said, "major refiners reduced gasoline 
production even in the face of unusually high demand ... contributing 
significantly to the price spike."

And in the spring of 2000 when prices soared past $2 a gallon, the 
report said that Marathon Ashland Petroleum held back on selling some of 
its cleaner burning gasoline from the market "so as not to depress prices."

It cited one internal Marathon e-mail, that warned that if the company 
unloaded too much of its gasoline it could "thrash the market." Another 
executive said he would rather make 40 cents a gallon on 40,000 barrels 
of gasoline than 10 cents a gallon on 50,000 barrels.

(snip)

Separately, the report cited another Marathon document, this one from 
1998, as an example of the lack of concern by oil companies over tight 
supplies.

The internal economic analysis by Marathon, dated, Oct 1, 1998, and 
marked "confidential" appear to welcome OPEC (news - web sites ) and 
other oil exporters' "efforts to rein in output" to try to prop up 
prices. It also noted that a major Gulf hurricane has provided some 
"storm induced optimism" about prices.

"Nature stepped in to lend the oil producers a helping hand in the form 
of Hurricane Georges which caused some major refinery closures, 
threatened offshore oil production and imports, and generally lent some 
bullishness to the oil futures markets," said the Marathon memo, which 
analyzed the short-term gasoline price outlook.

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20020429/ap_on_go_co/gasoline_investigation_2

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/  dave  /