Schumer: New Evidence Suggests Oil Companies Could Be Intentionally Driving Prices Up For Summer Driving Season
Big Oil May be Keeping Refining Capacity Low to Jack Gas Prices Up; While Switching to Summer Fuel Blend Always Brings Production Down, For Last 5 Years Production has Been Higher Than it is Now
With Profits as Their Clear Motive, Shorting the Market May be Too Tempting to Avoid
Senator Urges FTC Investigation of Refining Capacity
As gas prices jumped 28.5 cents a gallon in the last three weeks alone, today U.S. Senator Charles E. Schumer called on the Federal Government to ensure that oil companies dont intentionally drive up prices before the summer months to increase their bottom line. Today Schumer sent a letter to the Federal Trade Commission to urge them to closely monitor refining capacity and prices, which could rise even more as more Americans increase their travel this spring and summer. The Senator expressed concern that some companies may be keeping some of their refineries offline while they switch to the summer fuel blends making gasoline more expensive. Though production always goes down as oil companies switch to their summer fuel blends, for the last 5 years production has been higher at this time than it is now.
In general, after oil companies switch to producing their summer blends refineries typically operate at or above 90%. This is a regular occurrence, but for the past five years refineries returned to that level of operation more quickly than they have this year.. This year however, refining capacity is still hovering at 85% which leads some experts to believe that the oil companies may be dragging this along to drive up prices.
Given the past behavior of the oil companies who take advantage of natural or cyclical occurrences and raise prices even more than has been necessary, this requires scrutiny, Schumer said. Their record profits have continued and theyre making those profits on the backs of average Americans. Oil companies should be using their maximum refining capacity instead of possibly minimizing it, and the FTC needs to make sure this process is completely transparent so that prices dont continue to shoot up before the summer driving season gets underway.
Last week, the Energy Information Administration (EIA) released a report predicting that gas prices will rise 10.5 percent, on average, this summer. In addition, they predicted that regular gas will average $2.62 per gallon during the summer travel season, up 25 cents from a year ago. Unfortunately for New Yorkers and many other Americans, gas prices have already surpassed the EIAs estimates.
According to AAA the national average price of regular gas is $2.79 per gallon, up from $2.50 a month ago and $2.24 at this time last year. This is a 12 percent increase from last month and more than 25 percent from last year. And premium gasoline is up to $3.06 up from $2.75 last month and $2.47 a year ago.
The average price of regular gas in New York State is up to $2.93 per gallon up almost 40 cents from last month and $2.32 a year ago. This is an almost 15 percent jump from last month and 21 percent from last year. Premium gasoline has also jumped to $3.21 per gallon from $2.81 last month and $2.54 this time last year.
o In New York State, the average price for a gallon of regular unleaded gas is $2.93. That is up from $2.57 last month and $2.32 at this time last year. That equals a 15 percent jump in just the last month.
o In Buffalo, regular is at $2.87 per gallon, up from $2.49 last month.
o In Rochester, regular is at $2.87 per gallon, up from $2.49 last month.
o In Syracuse, regular is at $2.90 per gallon, up from 2.50 last month.
o In the Utica and Rome area, regular is at $2.91 per gallon, up from 2.50 last month.
o In the Capital Region, regular is at 2.91per gallon, up from 2.52 last month.
o In Binghamton, regular is at $2.92 per gallon, up from $2.53 last month.
In a letter to the FTC today Schumer called for an investigation to ensure that refining capacity is not being manipulated. The text of the letter follows:
April 18, 2006
The Honorable Deborah P. Majoras Chairwoman, Federal Trade Commission 600 Pennsylvania Ave, NW Washington, DC 20580
Dear Chairwoman Majoras:
I write to you today to ask the Federal Trade Commission to carefully monitor refining capacity during the summer fuel blend switch to ensure oil companies return to full capacity as quickly as possible. As oil prices and prices at the pump continue to rise, it is essential that our consumers have access to our nations full production capacity and that oil companies do not attempt to short the market in an attempt to increase their already huge profit margins.
As you know, fuel costs have been rising steadily, and, as of April 17, 2006, are currently averaging 278.3 cents per gallon. In the last three weeks alone, fuel costs were up a total of 28.5 cents per gallon. The price of a barrel of crude oil has been hovering at nearrecord levels, and currently sits at just over $69 per barrel. Now, with the summer driving season on the horizon, surging gas prices have become even more critical as Americans will be reaching ever deeper into their pockets to fill up their cars to get to work, take their children to school or visit their families.
One of the factors oil companies can directly control is their own refining capacity. Some of that capacity is offline at this point in time as the switch to summer blends for fuel is made. In fact, during the week of March 31, 2006 to April 7, 2006, refiners were only using 85% of their operable utilization, and finished motor gasoline production fell to 7.8 million barrels per day. While a temporary drop capacity may be appropriate, the FTC should carefully monitor oil companies to ensure they return to full capacity as quickly as possible. Full utilization of refining capacity can help ensure consumer pay the lowest prices currently possible. For example, between April and September 1998 the average operable utilization rate was at 98.1% and fuel prices averaged 106.5 cents per gallon. Although other factors also contribute to fuel prices, we must ensure oil companies are producing at their fullest capability.
American consumers will need all the help they can get at the pump as we head into the summer driving season. I urge the FTC to rigorously monitor refining capacity to ensure the industry is producing as the highest level possible and not manipulating the amount of product flowing to the market. I look forward to working with you to ensure your reply.
Charles E. Schumer United States Senator
Click here to view letter.