The gasoline business is dominated by a handful of oil companies that can manipulate supplies to increase prices and profits, and California is a prime spot for such maneuvers, congressional investigators said Monday.
A 396-page report by the Democratic staff of the Senate permanent investigations subcommittee does not accuse oil companies of violating federal antitrust laws, but notes that when only a few players control supply, then those companies have enormous power to control prices. The problem is worsened by the closure of dozens of refineries during the last 20 years, the report said.
"In a number of instances, refiners have sought to increase prices by reducing supplies," said the report, commissioned in June by Sen. Carl Levin (D-Mich.), who chairs the subcommittee. The report, citing internal oil company documents from the 1990s, contends that refiners employ a variety of strategies to boost prices, including reducing refinery production and exporting supplies out of the country.
Levin ordered the investigation, which is the subject of hearings today and Thursday, when a second summer of gasoline price spikes plagued the Midwest. This year, prices jumped again across the country as crude oil prices leaped; on Monday, the U.S. average price for a gallon of self-serve regular gasoline was $1.393, down about a penny from last week but up nearly 29 cents since early February, the Energy Department said.
The oil industry disputed the subcommittee report's findings, arguing that gasoline prices are set largely by market forces, including supply, demand and competition. Some of the blame for gasoline price spikes can be laid on government regulation, which requires more than a dozen gasoline formulas to fight air pollution in different parts of the country, said John Felmy, chief economist of the American Petroleum Institute.
"There are conditions in the market that have led to a reduction in the number of refineries. Our point is what's caused that is government regulation and not any attempt by firms to merge and increase concentration," Felmy said. California's prices are some of the highest and most volatile in the nation because the gasoline business here is particularly concentrated, with the top four refiners controlling nearly 80% of the refining capacity and the top six refiners operating about 85% of the retail outlets in the state, the report said.
