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COL Report: Oil prices affected

Oil companies cut output to manipulative profits

We doubt that motorists will be thunderstruck by the report that oil companies and refiners have been accused of manipulating oil supplies and gasoline prices to increase profits.

Most people have suspected this all along, but a report by a Senate subcommittee adds details that tend to support the charge. The 396-page report was released by Sen. Carl Levin, D-Mich., who is chairman of the Senate Permanent Investigations Subcommittee.

According to an Associated Press report, Levin said, "The concentration of oil companies is so heavy that it allows them to manipulate supply …; without fear of competition."

Levin said there should be stricter antitrust laws and that mergers of companies in the oil industry should be reviewed more carefully to prevent such abuses. According to Levin, some European countries require oil companies to keep a certain amount of oil or gasoline in storage to avoid shortages.

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Red Cavaney, president of the American Oil Institute, said the report did not find any collusion among the oil companies to set gasoline prices. He said action taken by companies working alone is not illegal and is "part of the free enterprise system."

The report quoted internal memos from several oil companies that refer to strategies for influencing price levels by controlling supplies. According to the report, in the summer of 2001 "major refiners reduced gasoline production even in the face of unusually high demand …; contributing significantly to the price spike."

; The report also cited the action of Marathon Ashland Petroleum in the spring of the year 2000 when prices in some areas exceeded $2 a gallon. It said the firm held back some of its cleaner-burning gasoline to avoid depressing prices.

It quotes a statement by one executive who said he would rather make 40 cents a gallon on 40,000 barrels of gasoline than 10 cents a gallon on 50,000 barrels.

Another section of the report quotes an internal 1990 memo of the BP Amoco Co., now known as BP. The memo cited various tactics for reducing production such as shipping supplies to Canada, filling the pipelines from the Gulf of Mexico to the Midwest with other products and lobbying for environmental regulations that would slow fuel shipments.

According to USA Today, the report also quotes a statement of Bill Greehey of Valero Energy, who told a newspaper reporter his company recently cut gasoline production and that refiners' profits could rise if other companies did the same thing. The report indicated this was an effort to encourage other refiners to take the same action.

However, a company spokesman said Greehey was simply stating a fact.

It is evident from the report that oil companies and refiners are sufficiently sophisticated to avoid outright collusion or evidence of collusion. They have means of conveying their plans to other companies and thus encouraging certain policies without violating existing law.

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The real problem lies in the concentration of ownership in the field and that can only be done through aggressive antitrust regulation. Given a presidential administration headed by oil industry alumni, that kind of action does not appear to be likely.

; The only effective remedy is a public outcry against industry concentration and a demand for blocking new mergers. It worked against John D. Rockefeller's Standard Oil Trust in 1892 and it could work again -- if there is aggressive leadership and if public outrage is sufficient.

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