FTC Gas Price Studies Have Little Effect

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FTC Gas Price Studies Have Little Effect

NEW YORK -- The Federal Trade Commission has launched eight separate probes of Big Oil and price-fixing in the last decade -- and not one of them came up with any evidence of criminal or civil improprieties.

"It's theater -- it's utterly predictable," said Jerry Taylor, director of natural-resource studies at the Cato Institute in Washington. He monitors the periodic federal investigations of gasoline price fixing.

Taylor said that, over the years, the oil industry has become used to dealing with the charges and doesn't bother to fight investigations, knowing the outcome will find nothing suspicious, according to a report in The Knoxville (Tenn.) News Sentinel.

Energy Secretary Spencer Abraham said he's surprised there hasn't been even more volatility in gasoline prices this year. He recalled that he was warned about a year ago the United States faced a "perfect storm" of events that could send gasoline prices soaring - war in Iraq, a strike in Venezuelan oil fields, unrest in Nigeria.

Sen. Carl Levin, (D-Mich.), who spent a year investigating why gasoline prices spiked in 2001, concluded the problem was that there was not enough competition in the market. He said major oil companies keep oil supplies tight and inventories low in order to keep the pump price high. When there is an unexpected disruption or increased demand, prices spike.

The FTC, which has responsibility for preventing monopolies, warned repeatedly in the 1980s that the wave of mergers in the oil industry was making the industry less competitive.

Through mergers and acquisitions, most of the independent oil operators have disappeared, particularly in Western states. Energy Department surveys showed that about 65 percent of gasoline purchases today are now made at gas stations that carry Big Oil brands, compared to 45 percent in 1995.

Closings of older independent refineries have also left the nation dependent on gasoline production from 150 refineries, which are more efficient than their predecessors but operate on a high level of production, meeting on the average 96 percent of demand. That means that if one refinery is knocked out of business, there is little reserve at other refineries to pick up the slack, the report said.

Peter Ashton, president of Innovation and Information Consultants, a Concord, Mass., financial consulting firm specializing in gasoline issues, told Congress last year that the industry adopted trendy "just in time" principles used in modern industry that try to provide the market with just enough product to cover demand.

Just-in-time concepts cut costs by reducing storage needs, but in the case of gasoline leaves the market subject to disruption of the kind that produces price spikes. Ashton said his analysis showed this could explain why the price of gasoline jumps at the pumps even when the price of crude oil remains stable.

Federal regulators say they are closely monitoring gasoline prices and ordered two major investigations in the last few years of unusual price hikes, one on the West Coast in 2001 and one in the Midwest in 2002.