While oil companies blame soaring gasoline prices on unexpected refinery shutdowns, Congress is questioning whether industry mergers and investment decisions have erased a supply cushion.
The House Judiciary Committee’s antitrust task force Wednesday opened the first of a number of hearings on oil industry concentration with its chairman noting that gasoline prices have soared well above $3 a gallon and asking, “How did we get into this mess?”
“Oil companies today are enjoying record profits, and while they could use those profits to invest in more production capacity, instead they use the money to buy back shares in the markets,” complained Rep. John Conyers Jr., D-Mich., the panel’s chairman.
Exxon Mobil Corp. and Chevron Corp., the nation’s largest oil companies, earned a combined $14 billion in the first quarter. Exxon bought Mobil in 1999, while Chevron acquired Texaco in 2001.
John Felmy, chief economist at the American Petroleum Institute, rejected suggestions that companies want to curtail production to keep prices high and said refiners have been producing record amounts of gasoline.
“The higher prices reflect an imbalance between supply and demand” and high crude oil prices, said Felmy, whose group represents the major oil companies, including Exxon Mobil, Chevron, and ConocoPhillips. He reiterated that refinery shutdowns, a decline in gasoline imports and higher demand are at the core of the upward price spiral. There is no evidence of price manipulation, he said.
Gasoline prices this week reached a nationwide record average of $3.10 a gallon, about 3 cents higher than after Hurricane Katrina devastated Gulf of Mexico oil supplies and shut down the Gulf’s refineries, according to the Energy Department.
Rep. Bart Stupak, D-Mich., who has crafted a bill that would make oil and gas price gouging a federal crime, questioned why gasoline prices soared even as crude oil prices dropped.
“In April ... crude oil was $7 a barrel cheaper than last year (but) gas prices were almost 50 cents a gallon higher,” said Stupak. “Clearly there’s more at play than simply the world crude oil market.”
Industry experts and DOE’s Energy Information Administration have cited an unusual number of refinery outages for the tight gasoline supply, resulting in higher prices. The agency this week said that as refineries get back on line, gasoline inventories are moving higher and that prices may begin to recede.
Consumer advocate Mark Cooper questioned at the House hearing whether the industry may be keeping supplies tight on purpose.
“By creating a situation of extremely tight supply, the oil companies gain control over price at the wholesale level,” said Cooper, who monitors energy industries at the Consumer Federation of America. Despite huge increases in refinery profits, there have been no investments in refinery capacity, he argued.
Felmy said that while no new refinery has been built since the 1970s, the industry has expanded existing refinery capacity at a pace equivalent to one additional new refinery a year over the last decade. Still, he said the decision to build refineries is made on whether it’s “in the interest of your shareholders given the uncertainties.”
Conyers said one problem has been industry consolidation.
“In 1993 the five biggest refiners in the U.S. controlled 35 percent of the market. By 2004 they controlled 56 percent,” he said, adding that in some regions a few refineries control the market.
“With this type of market structure, each individual refinery can limit capacity and drive up prices,” said Conyers.
Connecticut Attorney General Richard Blumenthal told the task force that “lax and lackluster” federal enforcement of antitrust laws has led to an explosion of oil industry mergers, “many of them profoundly anticompetitive and anti-consumer.”
(Copyright 2007 by The Associated Press. All Rights Reserved.)