The oil industry on Tuesday denied Democratic allegations that companies tried to boost U.S. gasoline prices over the last few years, saying price swings were caused by volatile crude oil markets, unexpected refinery shutdowns and pipeline disruptions.
Industry executives testified before the Democratic-led Senate Permanent Subcommittee on Investigations, which is probing the causes of higher U.S. gasoline prices. The nationwide average pump price of gasoline has jumped more than 25 percent since January, while crude prices are up by more than 37.5 percent.
The panel issued a nearly 400-page report on Monday that said the main reason behind rising fuel prices was a series of oil company mergers in the past few years that gave firms more market power. It also accused Marathon Ashland Petroleum of deliberately withholding gasoline from the market in early 2000 to drive up prices.
Gasoline marketing executives with BP, Exxon Mobil, ChevronTexaco and Royal Dutch/Shell Group said the panel's conclusions were wrong.
MERGERS IMPROVE EFFICIENCY
A wave of oil company mergers in the past five years has helped consumers by creating bigger companies that can cut costs and operate more efficiently, the executives said.
"As a result, the mergers have created strong competitors. We see no connection between mergers and fluctuations in gasoline pricing," said David Reeves, president of ChevronTexaco's North America products division.
"Consolidation has not lessened the level of competition in our industry. If anything, competition is growing even more intense," said Gary Heminger, president of Marathon Ashland.
A jump in gasoline prices typically reflects a tight supply of crude oil, a fire or accident at a U.S. oil refinery, or an unexpected problem with a pipeline, the executives agreed.
The government also plays a role in higher prices by requiring dozens of gasoline varieties to meet federal anti-pollution rules, they said.
Democrats on the panel questioned BP about a 1999 internal memo which outlined options to boost prices. The options were immediately rejected by senior executives, BP said.
BP never tried to purchase a competing refiner in order to shut it down, nor did it offer to supply gasoline in exchange for a competing refinery to close, said Ross Pillari, BP vice president of U.S. marketing.
Those options "were rejected because it is inappropriate to have this kind of activity in the marketplace," Pillari said.
PENNY INCREASE EQUALS $1 BLN PROFITS
Sen. Carl Levin, a Michigan Democrat who heads the panel, questioned the companies about their activities.
Internal documents from several oil companies reviewed by panel staff show "the oil companies view it to be in their economic interest to keep gas inventories low and the supply and demand balance tight," Levin said.
"Sudden increases in gasoline prices are costly to the consumer and disrupt our economy because the cost of transportation, which is based on the cost of fuel, effects the cost of all of our goods and services," Levin said.
For every one penny per gallon increase in gasoline, oil firms' collective income soars by $1 billion a year, he said.
Republican senators on the panel took a different view.
Sen. George Voinovich, an Ohio Republican, said volatile gasoline prices simply reflected the global crude oil market. In the past four years, U.S. crude oil has swung from a low of $11 a barrel to a high of $33 a barrel, Voinovich said, "and it only makes sense" for gasoline prices to follow suit.
The Bush administration's energy proposal last year called for easing environmental rules so that U.S. refineries can expand operations and reducing the number of so-called boutique gasolines that must be made for clean air regulations.
This spring, U.S. retail gasoline prices increased at a faster rate than at any other time in the past 50 years.
Prices have eased in the past few weeks. The Energy Department said on Monday that the nationwide average gasoline price was $1.393 per gallon, down 23 cents from one year ago. Prices are higher on the West Coast and tend to be cheaper in the South and the Gulf Coast regions.
The federal government recently forecast the nationwide price of unleaded regular gasoline will average $1.46 a gallon throughout the summer driving season.