In Katrina's wake, the supposed oil shortage and suspicious gas price hikes
by James Ridgeway
September 13th, 2005 11:25 AM
Supposedly gas prices are going through the roof because of an oil shortage. The hurricane made things worse. But it looks increasingly as though this is an out-and-out scam. The industry is awash with crude oil. However, it has reduced refinery output because selling refined products has been a money loser. Now, reports are suggesting the big companies worked together to slow refining capacity, and even tried to take independent refiners off the market, in their gambit to run up prices.
The Foundation for Taxpayer and Consumer Rights, a California consumer group dealing with utility and energy issues, has released a series of internal oil company memos that strongly suggest the industry conspired to withhold refined products to drive the price up. In the past the industry often blamed reduced refining on environmental regs that forced the companies to take refineries out of production. Memos from Mobil, Chevron, and Texaco in the 1990s (the firms subsequently merged) demonstrate the different ways the companies closed down refining capacity and drove independents out of the market. And according to the foundation, they were helped along by the American Petroleum Institute, the industry trade group. In one 1996 memo, Mobil suggested preventing a smaller refinery from flooding the market by "buying all their avails and marketing it ourselves." An internal Texaco memo indicated that the industry thought "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)"
The government currently is pushing refiners to increase production wherever possible because of the hurricane, even at risk of disregarding pollution standards, according to a report last week in the Financial Times. In addition, a refiner in Houston tells the Financial Times, the government is telling refiners to forget about doing maintenance: "Run the refinery as high as you can and avoid all non-priority maintenance in the next four to six weeks."