US consumer group blames oil mergers, consolidations for higher prices

The Consumer Federation of America said Monday recent mergers and consolidations have meant industry can more easily manipulate and profit from price fluctuations. An industry group replied that poorly executed regulations are to blame for higher prices.

By the OGJ Online Staff

WASHINGTON, DC, July 2 -- The Consumer Federation of America Monday said price gouging by US refineries and marketers, not the Organization of Petroleum Exporting Countries, was responsible for higher gasoline prices this spring.

CFA officials said recent mergers and consolidations in the US downstream have meant US refiners and marketers can more easily manipulate price fluctuations and thus profit from them.

"A concentrated, vertically integrated industry has responded slowly to price shocks and has even acted to keep supplies off the market," said Mark Cooper, CFA director of research who wrote a 47-page report on the subject. "While the industry complains that clean air standards requiring different additives in different markets restrict region-to-region flows of gasoline, those requirements actually give individual suppliers greater market power, aggravating the concentration problem."

CFA said that over the past 2 years, the refiner-marketer share of the pump price has more than doubled, escalating industry profits. "Compared to 1999, in 2000 net income from refining and marketing doubled. In the first quarter 2001, profits increased by nearly 75%."

CFA recommended that the federal government require industry to keep mandatory minimum inventory levels and use tax incentives to expand private stockpiles. It also wants regulators to stop excessive oil trader profits by "prevent[ing] private actions that make markets tight or exploit market disruptions" through government scrutiny and the imposition of a windfall profits tax to discourage price gouging.

None of those options are supported by industry or the White House, however.

"The real answer is to make certain our regulations are efficient and market-based," responded National Petrochemical & Refiners Association counsel Bob Slaughter. "We need more flexibility and efficient rulemaking to maintain diversity."

Slaughter added that calls for mandatory inventory levels do not reflect a clear understanding of how the industry operates. "Refining is a low-margin business and consumers are not going to be willing to pay for refiners to keep extra stocks," he said.

CFA also called on the US Justice Department and the Federal Trade Commission to better enforce antitrust rules.

But Slaughter countered that FTC regulators told Congress this spring that even after devoting nearly two-thirds of their competition resources to merger enforcement (many cases involving the oil industry), those investigations found no laws were broken.

One area that CFA and industry do agree on is increasing refinery capacity. A White House energy blueprint also calls on regulators and Congress to move forward with policies that encourage new capacity.

Between 1994 and 1999, over 10% of the nation's refineries and branded gasoline stations were closed. In the past 15 years, more than 70 refineries were closed, CFA said.

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