Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, Sept 4 -- US Sec. of Energy Spencer Abraham Wednesday told the House Energy and Commerce Committee his department is investigating last month's gasoline price spike.
Abraham's action responds to concerns by some lawmakers that fuel suppliers and marketers might have overcharged motorists above and beyond normal profit taking.
But multinational oil companies aren't the only apparent villains this time: 32 senators say much of the blame should fall on Saudi Arabia because Department of Energy numbers show the Kingdom curtailed crude sales to the US in the height of the summer driving season. Saudi officials deny there is any relationship between lower import figures from their country and higher US gasoline prices.
DOE responds
Abraham and industry officials already have given Congress several reasons for why they think prices rose on average of 12¢/gal during a 1-week period near the end of August. These reasons include the rupture of a Southwestern gasoline pipeline, strong demand, and blackout-related outages at US Northeast and upper Midwestern refineries.
"The recent high prices came about as a result of a number of factors," said American Petroleum Institute in a periodic fuel supply update to Congress released Thursday.
API cited Kinder Morgan Energy Partners LP's pipeline problems in Arizona; the trade group also noted that power outages temporarily shut down 7 refineries, causing further supply disruptions during the year's peak driving season.
"Normally at this time of year, refineries need to run at or above 95% of capacity just to keep ample product moving to consumers. Because the blackouts occurred at a time of peak demand, there was little surplus capacity available and little supply flexibility. And, despite record gasoline production, gasoline inventories [of 195 million bbl] remain about 8 million bbl below average for this time of year," API said.
Another important factor was crude oil prices, API said, which are the single largest component in the cost of gasoline; crude oil prices have increased to $32/bbl in August from $25/bbl in April.
"This increase reflects the uncertainties in the marketplace over the continuing unrest in several oil producing areas and [the Organization of Petroleum Exporting Countries'] lowered production levels," API said.
Price fluctuations
Abraham said that while DOE acknowledges all these factors likely contributed to higher prices, his department still wants to examine whether there was any market manipulation. DOE will then consult with antitrust regulators, including the Department of Justice and the Federal Trade Commission, to see if any price gouging occurred.
"The nature of this [price] fluctuation struck me as being unusually large as well and in need of greater explanation," he told the committee. Abraham made the remarks during a hearing on the Aug. 14 blackout, the nation's largest ever. US officials say they still do not know the exact reasons why power failures occurred; an answer could take several more weeks.
Some lawmakers demand more
The 32 lawmakers, all Democrats save one (independent Jim Jeffords of Vermont), charged that lower Saudi imports are why prices got so high, an accusation dismissed by oil analysts and the Kingdom.
According to Sen. Chuck Schumer (D-NY), recent government data shows that Saudi Arabia sold 25% less oil to the US in August compared to the past 4 months. In a Sept. 3 letter to the White House, Schumer and nearly three dozen of his colleagues, including Senate Minority Leader Tom Daschle (D-SD), said that decline was the main reason why US gasoline prices rose so quickly.
"It would seem that Saudi Arabia's decision to reduce its oil exports to the United States is the major reason that gasoline prices increased during the month of August," the letter said.
Schumer said DOE numbers show that during the month of August, Saudi Arabia cut its oil exports to the United States to 1.5 million b/d from 2 million b/d. "This decision by Saudi Arabia is particularly confounding for a number of reasons. Saudi Arabia had been consistently exporting approximately 2 million b/d to the United States for over 4 months, and chose to reduce its exports to the United States at a time when three other OPEC nations, Nigeria, Venezuela, and Iraq, were producing less oil than had been previously anticipated. The Saudi Arabian reduction in exports also occurred during a time of year when our nation's demand for gasoline has traditionally increased," the letter said.
To keep prices stable, Schumer and several Senate colleagues called on the White House to direct DOE to release 15 million bbl of oil from the Strategic Petroleum Reserve if oil imports from Saudi Arabia do not increase to 2 million b/d.
"This problem is not unsolvable. We respectfully urge you to call upon Saudi Arabia to resume exporting oil to the United States in amounts equivalent to exports made prior to the month of August.
In the event that Saudi Arabia does not resume such exports, we respectfully urge you to release 15 million bbl of oil from the Strategic Petroleum Reserve in order to compensate for the shortfall of Saudi Arabian oil exports."
Cause and effect
Oil analysts said that while it is true that gasoline prices are influenced in large part by the cost of oil, refiners vary the sources of crude they use every month depending on international market prices. And the price hike Schumer is referring to was caused by several factors, not just higher demand. Analysts also noted that prices seem to be stabilizing from peaks during the US Labor Day holiday.
"Gasoline prices appear to be moderating, following a week of record highs for the year. Prices averaged about 2¢/gal more than when they spiked in the springtime, and 27¢/gal more than at the start of the summer," API said.
Meanwhile, the Saudi government dismissed the Senate letter as "nonsense," saying that exports are well within historical levels and that they have and always will be a reliable supplier to the US.
"While it seems to be a trend to blame anything and everything on the Saudis, the latest claim that we have inflated oil prices is nonsense. Saudi Arabia has done all that it can to maintain stability in the global oil market and will continue to do so," said Ambassador to the US Prince Bandar bin Sultan.
"Earlier this year, taking into account the shortages resulting from civil unrest in Nigeria and workers' strikes in Venezuela, and the tense situation in the Middle East, Saudi Arabia, at great effort and expense, effected a substantial increase in oil production in order to prevent a disruption to the world's economy. And we were successful. Had it not been for these efforts, the impact of these events on oil prices and on the global economy could have been dramatic.
"On April 24, 2003, OPEC agreed to lower production, effective June 1, but not to pre-Iraq war levels. OPEC production quotas, in fact, are close to 1 million b/d higher than prewar levels. This move was welcomed by the marketplace and resulted in a further decline in oil prices.
"Saudi Arabia has been, and continues to be, a strong and reliable energy partner. It is wrong to politicize this issue or make the Kingdom a scapegoat in the ongoing debate over energy policies," he said.
Mazen Snobar, president and CEO of Aramco Services Co., a Houston-based subsidiary of Saudi Arabian Oil Co., gave reporters a similar message on the sidelines of a conference sponsored by the National Council on US-Arab Relations.
Snobar said his company was "disappointed" in the letter and suggested that the senators were "ill-informed." He expressed confidence in DOE's inquiry into the recent gasoline price hike and predicted the company would be vindicated.
