Oil Firms Said to Prop Up Gas Prices
By Kenneth Bredemeier
Washington Post Staff Writer
Tuesday, April 30, 2002; Page E01
Oil company mergers and the deliberate withholding of gasoline from the market by some firms have tightened supplies and forced price fluctuations at the pump, a Senate investigative report concluded yesterday.
The result is that gasoline prices are now "more volatile than ever" and often vary more in a month than they once did in a year, the report by the Senate's Permanent Subcommittee on Investigations said. The report was compiled after a 10-month study by the subcommittee's staff after last summer's gasoline shortages and price spikes.
The report accused Marathon Ashland Petroleum LLC of Findlay, Ohio, the sixth-largest U.S. oil company, of deliberately withholding some reformulated gasoline refined for summertime use in 2000 "so as not to depress prices."
Marathon Ashland immediately disputed the finding, saying it produced 33 percent more reformulated gasoline in 2000 than it did in 1999.
"We sold every drop we made," company spokesman Chuck Rice said. "Any assertion to the contrary is just wrong."
The report found no evidence of antitrust violations or collusion.
Sen. Carl M. Levin (D-Mich.), the subcommittee's chairman, is opening two days of hearings on the report today and has summoned oil company officials to explain why gasoline prices in recent years have routinely fallen and risen sharply again, particularly during the spring and summer as families head off on vacations.
In regions served by only a few oil companies, Levin said, "they are able to raise prices without fear of competition. They are able to manipulate supply to keep it low, and as supplies are low, the prices will go up." The report said the 1998 Marathon-Ashland Oil and BP-Amoco mergers, the Exxon-Mobil Oil merger a year later and other oil company mergers and acquisitions have led to increased concentration of refining and marketing operations throughout the United States.
As a result, the report said, by 2000, using a Justice Department and Federal Trade Commission standard, there was moderate concentration of gasoline marketing in 28 states and high concentration in nine.
The report said 189 firms owned a total of 324 refineries in 1981. By 2001, 65 firms owned 155 refineries, and at present 63 U.S. companies operate about 150 refineries.
"Because of the decline in the number of domestic refineries, total domestic refining capacity is slightly lower than it was 20 years ago," the report said. "At the same time, demand has increased. A tight market optimizes profits for a refiner.
"In the summer of 2001, major refiners affirmatively reduced gasoline production, even in the face of unusually high demand at the end of the summer driving season," the report contended.
The investigators noted that prices fell again last year as demand for fuel lessened after the Sept. 11 terrorist attacks, but they said refiners then cut production to obtain higher prices. By yesterday the national average price of a gallon of unleaded gasoline was $1.41, up 27 percent since the first of the year.
The Energy Department predicts that gasoline prices will continue to rise, perhaps to a summer-long average of $1.46 per gallon, although they will stay below last summer's average of $1.54.
Levin said he is also concerned about how gasoline prices posted by the major oil companies in specific regions and neighborhoods tend to ebb and flow in tandem with each other, a practice he called "parallel pricing."
"Although 'conscious parallelism' does not violate the antitrust laws, it may lead to the same effect as outright collusion," the report said.
Levin said that under current antitrust law, "it's not illegal to have the same price relationship up and down. The question is even if you can't prove collusion whether it ought to be at least evidence of an antitrust violation. It seems to me it should."
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