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Wednesday, 1 May, 2002, 21:56 GMT 22:56 UK
US petrol price row ignites
Petrol station in midtown Manhattan
Last year's surge in oil prices started an investigation
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David Schepp
BBC News Online's North America Business Reporter
line

As petrol prices have risen in the US in recent weeks, congressmen and their constituents are anxious to find out what exactly is driving up the cost of filling the tank.


The larger issue... is whether intentionally or not we seemed to have created a dynamic that would allow abuse to occur

AAA spokesman
After plummeting to around $1 a gallon in some states last autumn, the cost of petrol has surged an average 25% this year to around $1.40 (96p) a gallon, according to the US Department of Energy (DOE).

On Monday, the Senate issued a 400-page report laying the blame on a series of mergers among oil refiners for tightening supplies and driving up petrol prices.

The report says at least one petroleum firm, London-based BP, was considering limiting supplies of petrol in certain regions in 1999 in the hopes of boosting profits.

Surging oil prices

Each 1-cent increase in prices at the pump adds $1bn in industry profits, the study concluded.

Referring to internal documents obtained, Democratic Senator Carl Levin said several oil companies "view it to be in their economic interest to keep gas inventories low and supply and demand balance tight".

One oil-company executive, testifying on Tuesday before the Senate Permanent Subcommittee on Investigations, admitted to considering ways of manipulating the supply of petrol, but said no such action ever took place.

Petrol station sign in midtown Manhattan
Prices are 25% higher than a few weeks ago
BP executive Ross Pillari said the proposed production cutbacks were part of a brainstorming session and were never acted upon.

"It is inappropriate to have this kind of activity in the marketplace," he told the Senate panel.

Switching gears

Nevertheless, BP's profits have tripled over the last two years in the states most affected by sudden surges in petrol prices.

Senator Levin, who hails from one of those states - Michigan, said it was telling that industry officials were even considering such options "in order to manipulate supply."

It is time for the US to adopt European-style petrol inventory requirements, Mr Levin said. "It may be time to require a cushion of gasoline supply."

Oil-industry officials retort government regulations mandating numerous fuel types are partly to blame for higher prices.

Directives from the Environmental Protection Agency (EPA) have resulted in over a dozen different formulations of motor fuel to meet seasonal pollution requirements in various states and cities.

The wide range of fuel types makes it difficult for refineries to quickly switch from one petrol type to another.

Running on empty

But there are other factors as well, notably an acute shortage of domestic oil refineries.

That has left most of the US' 150 refineries running at near full tilt year round. It has also laid the groundwork for accusations the oil industry purposely bought then shut a number of refineries to drive up prices.

The spike in prices - at its most acute in the Great Lakes states and in California - have coincided with the implementation of the new cleaner-fuel requirements.

Oil executives claim this disproves the view that consolidation within the industry is itself causing higher prices.

"The evidence - both that given in committee and also that which we see on the street - indicates gasoline manufacture and marketing is an intensely competitive business," National Petrochemical and Refiners Association President Bob Slaughter told BBC News Online.

Larger issue

Speaking on behalf of motorists, American Automobile Association (AAA) spokesman Geoff Sundstrom said his organisation monitors mergers within the oil industry and has raised its concerns with Washington.

The AAA recently asked the Federal Trade Commission (FTC) to look into whether the industry was colluding to withhold production and distribution of fuels in some areas.

The FTC upon completing its investigation found no wrongdoing on the part of refiners two years ago.

"We're not surprised that various executives in the industry may have thought about the possibility of maximizing profits given somewhat restricted markets that exist in the spring and the summer," Mr Sundstrom told BBC News Online.

"The larger issue... is whether intentionally or not we seemed to have created a dynamic that would allow abuse to occur."

See also:

04 Apr 02 | Business
BP puts up cost of petrol
12 Mar 02 | Business
UK petrol prices rise
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