Gas-price conspiracy? You bet!

Marketplace Staff Jan 2, 2007

KAI RYSSDAL: The 110th Congress will be sworn in on Thursday. Speaker-to-be Nancy Pelosi has promised a whirlwind first 100 hours of the session. On the Democrats’ list of things to do is cut subsidies to the oil industry. Perhaps as a result, the American Petroleum Institute — that’s big oil’s main lobbying group — is launching a public relations offensive. Complete with Congressional oil patch tours, and contributions to friendly think tanks. It’s trying to convince people rising energy prices are simply the result of higher demand and shrinking supply.

Commentator and consumer advocate Jamie Court says that campaign is too slick by half.

JAMIE COURT: Say you’re an oil executive and you want to keep the Republicans in control of Congress. What can you do prior to an election?

Well, you can keep your refineries running at full speed, flood the market with extra fuel, and take less per gallon in profit than usual.

And guess what: Department of Energy data suggest that’s exactly what the oil companies did this fall.

By the second week in October, gasoline prices fell 70 cents from summer’s record highs. Refineries were running full throttle and America’s gasoline inventories were up nearly 7 percent from the three previous Octobers.

The rise in supply came despite BP’s major pipeline disruption in Alaska. Ordinarily, that’s an industry excuse to shrink supplies and raise prices.

Now, the oil industry claimed pump prices fell because crude oil prices dropped.

But gas prices dropped far more steeply than crude oil. Crude oil comes in barrels. There are 42 gallons in a barrel and the price of each gallon was down 10 cents this October over last. But gas prices fell 61 cents a gallon over the same time last year.

In other words, in the run-up to the election, oil companies cut gasoline prices 500 percent more than their raw material cost fell. And it wasn’t because refining and distribution costs rose. They’re relatively stable.

Oil companies simply took less profit from their refineries for a short period of time. Could it have been to influence a political outcome?

Well, right after election day, the price of gas suddenly rose after two months of sharp decline. Post-election, refineries have slowed down, inventories are shrinking, and gas prices are climbing.

It’s back to business as usual, unless the new Congress starts to do business differently.

RYSSDAL: Jamie Court is the president of the Foundation for Taxpayer and Consumer Rights.

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