Caruso questions refining capacity manipulation allegations

Nick Snow
Washington Correspondent

WASHINGTON, DC, June 15 -- The US government's top energy economist questioned allegations that refiners intentionally reduced oil-processing capacity this year to drive product prices higher.

US Energy Information Administration Administrator Guy F. Caruso told the Senate Small Business and Entrepreneurship Committee June 14 that reduced product inventories which extended into May apparently were the result of unplanned refinery unit shutdowns.

During a hearing on the impact of higher gasoline prices on small businesses, Caruso explained that refiners schedule maintenance turnarounds in January and February to repair equipment and prepare for the summer driving season.

"The companies try to plan this to maximize their individual sales opportunities. No individual company would take down a refinery to reduce sales. Their objectives are to maximize sales. What went wrong was that there were a number of unplanned outages," Caruso said. "While we're not an investigative agency, we haven't seen any attempt to manipulate the marketplace."

Citing EIA's latest short-term energy outlook released on June 12, he said US regular gasoline prices are expected to average $3.05/gal nationwide this summer because of strong demand and low inventories. Crude oil prices, which EIA expects to average over $65/bbl for West Texas Intermediate through the summer, are expected to keep the average nationwide regular gasoline price above $3/gal through the summer, Caruso said.

"Recently, total gasoline imports have returned to normal levels. We believe these normal levels or possibly somewhat higher-than-normal levels will need to continue to avoid further upward pressure on prices," he told the committee. "With the hurricane season beginning, continued tight refining conditions and low gasoline inventories, and increased demand for summer travel, upward pressure on gasoline prices does remain a concern."

Business impacts
"Whatever the cause, the volatile and increasing cost of gasoline is wreaking havoc on small businesses," said another witness, Sal Lupoli, president and chief executive of Sal's Pizza in Lawrence, Mass. "Rising fuel costs have a direct impact on my means of delivery for my business, and on my employees who often can't afford gasoline for their cars so they can come to work. We encourage car-pooling and public transportation, but these options are not always available."

Janet Myhre, government services group director at Chuckals Inc., said the office supplies company in Tacoma, Wash., is feeling the impact of higher crude oil prices beyond its delivery fleet. Prices have risen for reporter binders because vinyl used on their covers is made from petroleum, she explained. "We're at a level where we have to decide whether to scale back our operations. Maybe we'll lay off some local employees and start to use an outside delivery service," she said.

Other witnesses described impacts of higher gasoline prices on larger operations. Frederick W. Smith, chairman, president, and chief executive of FedEx Corp. in Memphis, said the overnight delivery service decided it would use EIA's reported oil price to help determine its rates, which it posts on the Internet, instead of being in the oil futures market.

"As oil prices go up, we add surcharges. At times during this recent run-up, our prices have gone as much as 20% higher for our air express business, and slightly less for our ground business. Over the last 3 years, we have steadily increased the base crude oil price," he said.

Smith also cochairs the Energy Security Leadership Council, which has urged Congress to require the US transportation fleet to use fuel more efficiently, make alternative fuel sources more readily available, and increase access to unrecovered domestic oil and gas resources for responsible production.

Timothy P. Lynch, senior vice-president of American Trucking Associations Inc., said the organization's members are concerned about rising diesel fuel prices. ATA and its members do not oppose new engine designs and requirements to use ultralow-sulfur diesel, but they want Congress to understand that environmental improvements sometimes reduce fuel efficiency, he told the committee.

"Many of the problems anticipated [with ULSD] have not materialized. We support [biodiesel's] use but believe that national standards are needed, with pre-emption of state mandates, so it will be a uniformly high-quality fuel," Lynch said.

Contact Nick Snow at nsnow@cox.net.

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