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$100-a-Barrel Oil Fuels Conspiracy Theories: Some See Plot to Jack Up Gas Prices ? Others Say There's More to It.

Posted on: Sunday, 6 January 2008, 06:00 CST

They're playing with us. You suspect it every time you fill up your tank or look over at the numbers on the gas station sign.

The price always goes up like a rocket but drifts down like a feather?

You share conspiracy theories with friends, family, neighbors. Still, you always, always return to the pump and pony up for your high-octane fix.

"Somebody is behind all of this," said Sacramentan Brenda Hayden as she recently filled up her silver Toyota Corolla for $3.18 a gallon at the Valero station on Broadway. "I have some ideas, but I can't prove anything. All I can do is pay it."

Wednesday's news that oil briefly hit $100 a barrel has revved up motorists' suspicions and concerns. In interviews and online, they express a shared certainty that powerful forces -- political parties, the president, foreign oil exporters, the oil companies -- either separately or in concert are gaming the little guy for profit or personal ambition.

One of those vague suspicions has some basis in fact. Gas prices do go up faster than they come down, say experts, but market forces dictate the trend, not some grand conspiracy. Gas retailers are quick to raise pump prices when wholesale fuel costs rise, but they aren't as quick to pass on their savings once the wholesale price retreats.

Gasoline prices and conspiracy theories go together like JFK's assassination and the grassy knoll. It doesn't help that mystery shrouds how gasoline wholesalers and retailers set their price or that those prices are on track to rise again this year.

"There are a lot of reasons for this, both foreign and domestic," said UC Davis historian Kathy Olmsted. Consumers know about OPEC's prior production controls, she said, and President Bush's ties to the oil industry.

"They know that oil companies have gotten tax breaks, and that oil prices are soaring," Olmsted said. "They respond to rising prices by believing that some of these secretive, powerful forces are colluding to defraud the consumer."

Lodi resident Roy Holden has been suspicious about the gasoline market for years. As he filled his Ford F-150 pickup at the Quik Stop convenience store in Galt, he laid out his reasoning.

"This oil stuff, it seems like it's conveniently timed for right after the holidays and right before the presidential elections," he said, topping off the tank with $45 worth of regular unleaded. "You just get this feeling that government and business has a meeting somewhere, off the record, and they say, 'OK, this is what we're going to do.' Of course, little people like me pay it."

Oil experts, executives and gas station owners advance other explanations for what you pay at the pump.

Generally speaking, they say, prices are the end result of decisions made by people all along the supply chain, from pension-fund managers investing in commodities to oil company officials, from commodities traders to leaders of the oil-producing countries.

A $1 increase in the price of a barrel of oil translates into a 2.4 cent increase in retail gasoline prices, according to federal energy statistics, and it takes about six weeks to show up at the pump.

Gas price jumps and slumps don't march in lockstep with crude oil prices. Wholesalers, for example, set their prices with other factors in mind, although one company after another contacted by The Bee declined to discuss their pricing strategies in detail.

"I don't know that I want to reveal anything about wholesale pricing methodology," said Cyrus Mojibi, spokesman for San Joaquin Refining Co. Inc., a Bakersfield-based independent refiner. "I'll just say ... there are other factors that go into our pricing besides crude costs."

Leif Sollid, a spokesman for San Ramon-based Chevron Corp., also declined to talk specifically about how it sets wholesale prices. "It's market forces and a whole bunch of other stuff rolled into that," he said.

Chevron reported that its U.S. "downstream operations" -- the part of its business that takes place after fuel production and through the point of sale -- lost $110 million in the third quarter last year. A year earlier, those operations showed a profit of $831 million. The fall-off came from higher crude prices that the company didn't pass through to consumers. That shrank profits, the company said in its November report.

"We lost money," Sollid said. "We weren't pleased to report that, but it underlines that energy companies don't control costs."

Tyson Slocum, director of energy programs at Public Citizen, a public interest group founded by Ralph Nader, blamed the run-up in gas prices on poor government oversight for allowing "a heckuva lot of speculation" by hedge funds and other institutional investors.

"New financial players are moving more money into commodities, especially since the home market bust," Slocum said. "These are nontraditional investors who aren't concerned with delivery obligations or prices at the pump. They are strictly profit-driven."

As for politicians, well, they hold hearings to beat up on Big Oil -- and perhaps to reassure constituents that they are not tools of industry.

Last summer, for example, as the national average for a gallon of gas hit a record $3.22, Congress held hearings over accusations of mismanagement and lack of competition among oil giants.

In an attempt to stifle critics, the American Petroleum Institute, an oil industry advocate, sent out an e-mail prior to the hearings that noted nearly 30 state or federal investigations over 30 years have turned up no price-fixing proof.

"But you know we're being set up," said commuter Jarrod Williams as he filled his Ford Focus on Friday morning for $3.32 a gallon at the Chevron station on Laguna Boulevard and Highway 99. "Prices are going to shoot up really fast and then come back down. Slowly."

That observation is accurate, said oil industry consultant David Hackett. It even has a name: "the rockets and feathers effect," which describes the counterintuitive notion that gas station owners make more money when wholesale gas prices fall than when they rise.

It works like this: If a dealer has to pay, say, a nickel more for a gallon of gas, he or she will quickly pass that along and hope the competition does the same to maintain profit margins.

"Then prices fall like they always do," Hackett said. "Now, do the dealers rush to take the nickel off? Maybe not. They think, 'Maybe I don't need to be in a hurry. I like that I'm making a little extra.'"

Prices eventually drift down, Hackett said, as dealers watch their competitors and their sales volume.

Rising gas prices also hurt sales of other, more profitable, items, said Marin County gas station owner Dennis DeCota.

"It cuts into everything from Twinkies to car washes," he said.

Standing in a stinging rain as he topped off his tank with Chevron gas, Williams said he figures he'll be paying $3.75 or $4 for a gallon by summer. He'll pay it, he said, because he has to get to his medical assistant job in Roseville from his Elk Grove home.

"Look at me," he said, as the blowing rain pelted him. "I'm going to pay 30 bucks for something that's only going to last a few days, and I'm getting drenched to do it. What else can make you do that?"

Source: The Sacramento Bee

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