• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Oil Firms Accused of Driving Up Gas Prices

Posted on: Thursday, 4 May 2006, 18:04 CDT

By Craig D. Rose, The San Diego Union-Tribune

May 4--The oil industry has taken $100 billion in windfall profits since 2000 by restricting gasoline supply to drive up prices, two national consumer groups charged in a report released yesterday. -- Meanwhile, data also released yesterday seemed to signal commodity traders that pricing pressures on petroleum and gasoline might be easing.

The report on the oil industry by the Consumers Union and the Consumer Federation of America said an ongoing effort by the petroleum industry to characterize its profit levels as within the norm for U.S. business was "deceptive and misleading."

"We found the industry tries to mislead the public and policymakers by telling very different stories on Wall Street and on Main Street," said Mark Cooper, author of the report and research director for the Consumer Federation.

Cooper noted that in communicating to the general public, oil companies emphasize the profit they derive from each sales dollar -- about 8.5 cents, according to industry ads.

But Cooper said that downplays the amount of profits that the industry is earning because it records huge sales volumes.

In talking to investors, petroleum companies emphasize what Cooper called the more important measures of cash flow and return on equity, or the return generated on shareholder investment.

Cooper also said he found that the difference between pump prices and the cost of crude used to produce gasoline has risen 40 cents per gallon above historical averages, meaning that recent gas increases were inflating profits for the industry.

Petroleum companies have limited the supply of gasoline by keeping refining capacity tight, said the consumer researcher. And he added that the ability to raise prices without concern for losing market share was evidence of just how uncompetitive the market has become.

"This is an industry that can't do spring cleaning without spiking prices," said Cooper, referring to gasoline price increases as refineries shift from winter to summer blends.

"This industry carries much less excess capacity than other manufacturing sectors," he said.

A spokeswoman for the American Petroleum Institute, an industry group, acknowledged that the industry had posted record profits in recent years. But spokeswoman Rayola Dougher denied that oil companies have sought to mislead the public by characterizing profits as a percentage of dollar sales.

"That measure is more widely understood," Dougher said. "How much of each dollar sales goes to profit is nice way to communicate (the breakdown)."

Dougher also challenged the consumer groups' allegation that the industry's return on equity is far above the norm for large companies.

"I am mystified by (Cooper's) calculation," she said.

"You have to understand the scale of this industry. They are taking in hundreds of billions, but they are spending tens of billions on investments."

In its weekly report on the oil industry, the Energy Information Administration reported yesterday that national gasoline inventories rose by 2 percent, the first weekly increase in two months.

Inventories nationwide are now about 11 percent below the levels of last year at this time.

The California Energy Commission said statewide inventories of gasoline fell about 3 percent last week, pushing them 13 percent below levels of last year.

Despite the falling inventory, the commission reported that gasoline production within the state rose 1 percent last week. But production was still 5 percent below levels of last year.

The energy commission said that the recent run-up of gasoline prices could be attributable to delayed imports of gasoline into the state.

The industry reports might have contributed to a $2 per barrel decline in the price of light sweet crude oil to $72.28 and a 9-cent fall in gasoline futures in trading on the New York Mercantile Exchange.

But prices for local motorists still rose yesterday.

A survey by the Utility Consumers Action Network found that the average retail price for regular gasoline in San Diego County rose to $3.39 per gallon, up 5 cents in one day.

Michael Shames, executive director of UCAN, said he expected regional prices to continue rising through the weekend but had some hope prices would abate next week.

"I honestly thought the top of the market would have come already," said Shames, who wants state officials to more carefully monitor the market.

Local independent gasoline retailers said their quoted costs for gasoline increased yesterday morning but noted that suppliers predicted prices would fall today.

"My cost for gasoline today would have been $3.61 (with all taxes)," said David Whitlow of Spirit Auto Center in Lakeside. "But I heard it was going down significantly."

-----

To see more of The San Diego Union-Tribune, or to subscribe to the newspaper, go to http://www.uniontrib.com.

Copyright (c) 2006, The San Diego Union-Tribune

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

Source: The San Diego Union-Tribune

More News in this Category