Oil Refineries' Huge Profits Predate Big Storms

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Oil Refineries' Huge Profits Predate Big Storms

DENVER -- While gasoline shortages from hurricanes Katrina and Rita have caused some price spikes, DenverPost.com reported refiners' gross profit margins have been climbing steadily for the past year, long before the hurricanes hit. A Denver Post analysis shows that gross profit margins on gasoline at the nation's refineries have more than tripled from about $7 a barrel in September 2004 to $22.77 on Tuesday.

According to the report, the nation's top five oil companies -- ExxonMobil, BP, Royal Dutch Shell, Chevron and ConocoPhillips -- own 42 percent of U.S. refining. In the first half of 2005 compared with the first half of 2004, net income increased 65 percent for ConocoPhillips, 39 percent for Royal Dutch Shell, 38 percent for Exxon Mobil and 31 percent for BP. Chevron reported a 4 percent decrease.

"It's very difficult for consumers to go to the gas pump and pay record-high prices for gas and then open the business page and see where oil companies are making record profits," U.S. Sen. Mark Pryor, the ranking Democrat on a Senate consumer affairs subcommittee, said in the DenverPost.com report.

"My suspicion is that [refiners] are taking advantage of the American public," he said in the report. "We can't prove it yet, but that's my suspicion."

According to the DenverPost.com , energy analysts and economists say refiners have been able to increase margins for two main reasons: limited refining capacity that can cause spot shortages of gasoline and lack of competition in the refining sector, such as big mergers that brought together companies such as Exxon and Mobil, Chevron and Texaco, and Conoco and Phillips have reduced competition.

Refiners say the high margins reflect gasoline supplies that were tight before Hurricane Katrina and have since grown much tighter. Yet, throughout the past year, refinery profit margins have climbed sharply compared with crude-oil prices, according to the DenverPost.com .

The Federal Trade Commission is investigating whether oil companies have engaged in profiteering or restricted refinery capacity to fix gasoline prices, an agency official said this week, according to the BillingsGazette.com . The FTC has investigated reports of collusion and price fixing by oil companies since 2001 but has not found any evidence of it.

"The vast majority of the commission's investigations and studies have revealed market factors as the primary drivers of both price increases and price spikes," John H. Seesel, associate general counsel for energy at the FTC, testified during a recent Senate Commerce Committee hearing on energy prices, reported BillingsGazette.com .

"Although recent oil company profits may be high in absolute terms, industry profits have varied widely over time, as well as over industry segments and among firms," he said in the report.

According to BillingsGazette.com , the Senate last week approved a $1 million amendment to an appropriations bill to fund an FTC investigation into potential gas-price gouging at all levels of the supply chain. Eight Democratic governors of Midwest and Western states joined the chorus of government officials and private citizens asking Congress to investigate gas prices, citing "the excessive profits being made by oil companies who are taking advantage of this national crisis."

The sudden price spike "reflects the severity and expected persistence of Hurricane Katrina's impact on refining operations in the Gulf," Guy Caruso, administrator of the U.S. Energy Information Administration (EIA), told the Senate committee in the BillingsGazette.com report.

A petroleum trade group blamed the large, local increases on station owners and the area's distance from gas supplies.

"The decisions made at the retail level, at the stations, are made by individual businessmen and women," Bob Slaughter, president of the National Petrochemical and Refiners Association, told the committee in the BillingsGazette.com report. "Only about 10 percent of gas stations are owned and operated by refinery companies."

Industry executives said a federal price-gouging law would not be effective and could cause pricing and production problems similar to those that led to lines at gas stations in the 1970s. Caruso of the EIA said state regulators can police pricing more effectively than federal agencies. "The closer you get to the actual retail level, the wholesale level, the better you are," he told BillingsGazette.com .