Democrat Seeking ‘Price-Fixing’ Probe of Oil Refineries Not Sure How Many Are Run by ‘Big Oil’

By Penny Starr | May 20, 2011 | 5:43am EDT

Sen. Claire McCaskill (D-Mo.) is asking the Federal Trade Commission to investigate possible price-fixing of gasoline by U.S. refineries. ( Starr)

( - Senate Democrats are calling on the Federal Trade Commission to investigate possible price-fixing of gasoline by U.S. refineries because “recent reports,” according to the senators, suggest the refiners are trimming supply to keep prices high.

But a federal report from November shows that refinery stockpiles started to decline in 2008, if not earlier.

At a press conference on Tuesday, Sen. Claire McCaskill (D-Mo.) and Sen. Charles Schumer (D-N.Y.) announced that they had sent a letter that day to the FTC, “to request the Commission begin an investigation into potential price fixing of gasoline by U.S. refiners.”

“Recent reports have indicated that U.S. refiners are cutting back on U.S. gasoline stockpiles in order to artificially keep prices high and inflate their bottom line,” the senators said in their letter. “Accordingly, we request that the Commission open a full investigation into these allegations of wrongdoing and to determine the impact this behavior, if confirmed, has on regional and national gasoline prices.”

When asked by if she knew how many U.S. oil refineries were owned by the top five oil companies, McCaskill could not say.

“We’re trying to gather exactly all the refineries and who has ownership of all of them,” she said. “I know that at one point in time, most of the refineries were independent,” McCaskill said. “I know now a great number of them are controlled by big oil.”

“I don’t have the specifics for you today,” she added.

At the press conference, Sen. McCaskill questioned “whether we’re giving enough scrutiny to the refining step in the supply chain and whether or not there is any type of collusion or attempt to withhold oil production in order to drive up these higher profit margins for Exxon and for the other four big ones.”

The top five oil and gas companies operating in the United States are ExxonMobil, Chevron, ConocoPhillips, Royal Dutch Shell and BP America.

According to the U.S. Energy Information Administration (EIA) -- which was cited in the senators’ letter to the FTC to show that production capacity at U.S. refineries had dropped 7 percent from last year -- the five largest oil companies own 23 percent, or less than one quarter, of the 141 oil refineries operating in September 2010.

As reported by the EIA in September 2010, ExxonMobil owns 6 refineries; BP owns 6; Chevron owns 5; ConocoPhillips owns 11; and Shell owns 4 refineries – a total of 32 refineries out of 141.

In November 2010, the non-partisan Congressional Research Service issued a report, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies. It states, “A decade ago, 158 refineries operated in the United States and its territories and sporadic refinery outages led many policy makers to advocate new refinery construction. Fears that crude oil production was in decline also led to policies promoting alternative fuels and increased vehicle fuel efficiency. Since the summer 2008 peak in crude oil prices, however, the U.S. demand for refined petroleum products has declined, and the outlook for the petroleum refining industry in the United States has changed.”

As for the cutback in production by U.S. refiners, the CRS report says, “In response to weak demand for gasoline and other refined products, refinery operators have begun cutting back capacity, idling, and, in a few cases, permanently closing their refineries.”

“By current count, 124 refineries now produce fuel in addition to 13 refineries that produce lubricating oils and asphalt,” reads the report. “Even as the number of refineries has decreased, operable refining capacity has actually increased over the past decade, from 16.5 million barrels/day to over 18 million barrels/day.”

“Cyclical economic factors aside, U.S. refiners now face the potential of long-term decreased demand for their products,” states the report. “This is the result of legislative and regulatory efforts that were originally intended, in part, to accommodate the growing demand for petroleum products, but which may now displace some of that demand. These efforts include such policies as increasing the volume of ethanol in the gasoline supply, improving vehicle fuel efficiency, and encouraging the purchase of vehicles powered by natural gas or electricity.”

In other words, some of the green/alternative energy policies pushed by the Obama administration (and the previous Bush administration) have lessened demand for refined petroleum, and the U.S. refiners have subsequently cut back on production.

The CRS report cites a slew of federal laws and EPA regulations concerning alternative energy that have contributed to a reduction in domestic oil use. “The prospect of declining motor-fuel demand may persuade operators to idle, consolidate, or permanently close refineries,” states the report.

Concerning the letter to the FTC and remarks made by McCaskill and Schumer, some oil industry experts said the senators’ statistics were “selective” and meant for “political gain,” and that U.S. refineries are producing “record amounts” of gas.

“To suggest something untoward is going on is just plain silly,” said John Felmy, chief economist with the American Petroleum Institute (API), an oil and natural gas trade association representing more than 400 corporate members.

“It’s unfortunate,” Felmy said. “And it’s an insult to the millions of Americans who work for the oil and gas industry.”

According to API, the oil and gas industry employs 9.2 million Americans and U.S. oil companies generate $100 million a day in revenues for the federal government.

Between 2004 and 2008, the U.S. oil and gas industry paid $300 billion in income taxes, more than half of which went to the federal government, according to API.

Sen. Churck Schumer (D-N.Y.) ( Starr)

When asked by a reporter at the press conference about the shareholders of U.S. oil companies, including those in retirement pension funds, Schumer dismissed the question.

“I don’t think it matters, okay?” Shumer said, adding that “real” and “fair” competition was what mattered, “no matter who the shareholders are even if they are all average citizens, which obviously they are.”

“And that’s the bottom line,” Schumer said. “Exxon’s job may be – as is in free market capitalism – to maximize the profits for shareholders. That’s not our job.”

“Our job is to give a fair and level playing field for the drivers, the consumers across the country,” Schumer said.

Schumer said they don’t know yet if U.S. refineries’ practices are a “smoking gun” but that an investigation was appropriate given evidence of increased profits at the refinery stage of oil production and lower capacity rates.

“At a time when major refiners and oil companies are making record profits and American families continue to struggle with gasoline at record prices, the idea that refiners may be manipulating the market to keep prices artificially high is offensive,” the letter said.

Democrat Sens. Harry Reid (D-Nev.) and Patty Murray (D-Wash.) have joined the call for an investigation of U.S. refineries.

 Michael Chapman contributed to this report.

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