msnbc.com news services
updated 9/22/2005 11:28:21 AM ET 2005-09-22T15:28:21

The U.S. Federal Trade Commission is investigating whether gasoline price profiteering has occurred and if oil companies have constrained refinery capacity to manipulate fuel prices, an agency official said Wednesday.

“A determination that unlawful conduct has occurred will result in aggressive law enforcement activity by the FTC,” John Seesel, an FTC associate general counsel, told a Senate Commerce Committee hearing.

The FTC is responding to language in recently passed energy legislation that requires the agency to probe whether gasoline prices have been manipulated by attempts to reduce refining capacity, Seesel said.

U.S. oil companies have adamantly denied that they have acted to constrain gasoline or crude oil supplies.

The FTC is keeping an eye on gasoline prices, even though they have fallen from their record $3.07 per gallon national average price seen when Hurricane Katrina hit the Gulf Coast, Seesel said.

“The commission is very conscious of the swift and severe price spikes that occurred immediately before and after Katrina made landfall,” Seesel said.

Four major oil refineries remain shut and a large chunk of oil production in the Gulf of Mexico is still offline due to damage from Hurricane Katrina which slammed into Louisiana and Mississippi three weeks ago.

And now with the approach of Hurricane Rita, which has strengthened into a Category 4 storm, oil and gas companies have evacuated thousands of their workers from oil rigs and production platforms in the Gulf. Some refineries are starting to shut down, and Houston’s mayor called for an evacuation of low-lying, flood-prone areas of his city.

Separately, the Government Accountability Office said recent retail gasoline prices have risen faster than crude oil prices.

This goes against the historical trend when major crude oil price swings are generally mirrored by gasoline prices, said Jim Wells, GAO director of natural resources and environment.

Governors urge probe
On Tuesday, eight Democratic governors asked President Bush and congressional leaders to investigate possible gasoline price gouging in the aftermath of Hurricane Katrina.

In a letter, the governors urged an investigation into “excessive profits being made by oil companies who are taking advantage of this national crisis.”

The letter was signed by the governors of Oregon, Wisconsin, Michigan, Illinois, New Mexico, Iowa, Montana and Washington. It also urged Congress to refund any excessive profits to consumers.

The letter cited a study by University of Wisconsin economist Don Nichols that found the hurricane was not entirely to blame for high gas prices.

Historically, Nichols said, the markup between the price of a gallon of crude and a gallon of gasoline is about 85 to 90 cents a gallon, including refining, distribution and taxes.

The study estimated that for pump prices to reach $3 a gallon, the price of crude oil would have to be about $95 a barrel, but crude prices have been holding around $65 a barrel, and Katrina has not caused a surge in crude oil prices.

“The disconnect between gasoline and crude oil prices is quite remarkable,” Nichols said.

Ed Murphy of the Washington-based American Petroleum Institute said refining capacity was tight before Katrina and the storm reduced it further by knocking out some refineries.

“That put upward pressure on petroleum prices,” he said. “It’s a no-brainer.”

Reuters and the Associated Press contributed to this report.

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