Oil Companies Driving Up Prices, Local Taxpayer Group Charges

By Olin Ericksen
Staff Writer

August 29 -- With Hawaii considering a cap on gas prices and mainland motorists spending an all-time high to fill up, a local consumer rights group plans to release a study it says proves oil companies are intentionally drilling into drivers pocketbooks at the pump.

The Santa Monica-based Foundation for Taxpayer and Consumer Rights (FTCR) is accusing Exxon Mobil, Royal Dutch Shell and ConocoPhillips of "profiteering," saying that the companies are intentionally lowering production during summer months to drive up prices.

"In a commodities market, domestic oil companies know that the lower the inventories they keep, the higher the profits, because perceived shortages mean a speculative run-up in prices," said Jamie Court, president of FTCR.

Manipulation of domestic refining capacity and inventories by American oil companies -- rather than conditions under OPEC, government and environmental regulations and litigation -- are the real reason behind gasoline price spikes, Court said.

The foundation plans to back up allegations of price gouging with a study to be released before Labor Day on September 5, which will include a historical look at oil prices and financial figures, Court said.

Since July, prices have climbed an average of nearly 35 cents across the nation, leading to record profits for oil companies, according to experts.

Exxon Mobil and Royal Dutch Shell's second quarter earnings were nearly 35 percent higher than last year, company financial figures showed. And ConocoPhillips' take skyrocketed 51 percent, pushing that company's earnings to nearly $3.1 billion worldwide last quarter.

While those companies did not comment, Dr. Eraj Ershaghi, Director of Petroleum Engineering Program at USC and an expert in gas prices, said he has seen no indication to back FTCR’s contention.

"I haven't seen any proof that shows (oil companies) are intentionally decreasing production," said Ershaghi. "But I don't know what goes on behind closed doors."

In California, there is a shortage of refineries and those that are online are operating at nearly 90 percent capacity, leading to a greater chance of breakdowns, Ershagi said.

Further, because of increased state regulations, building more refineries in the golden state is undesirable.

"Nobody wants to build a refinery in California when you have to visit nearly 16 regulatory bodies to receive the right permits," he said.

Rather than problems in production, Ershagi said that Californians’ appetite for gasoline is the main culprit behind rising prices.

"Consumption is what's really killing us," said Ershagi, noting that Californians guzzle up nearly 2 million barrels of oil every day, while producing only about 700,000 barrels currently.

Added to the equation is that fact that demand is growing worldwide in places like China, which consumes nearly 5.5 million barrels a day, and India, at nearly 2.5 million barrels a day.

At the present rate, drivers in California could be paying nearly $4 per gallon by the end of the year, Ershagi said.

With seemingly no relief in site, officials in Hawaii announced Thursday that they are considering the dramatic step of setting caps on wholesale prices of gasoline.

Setting price restrictions has not been attempted since the 1970s, when fuel shortages lead to long lines and short tempers at gas stations nationwide.

Californians currently pay an average of only 4 cents less per gallon than drivers in the Aloha state. If that trend continues, other states may want to consider following Hawaii's lead, Court said.

"Big Oil may have Americans over a barrel now, but $3 per gallon gasoline should spur statehouses to take matters into their own hands," Court said. "Every summer should not be open season for oil companies to gouge American motorists."

Alledging that "Capitol Hill is complicit," Court's group advocates increased regulation and supervision at a state level to put forth laws that restrict profiteering through reforms such as an excess profits tax, public utility regulation of refineries and price controls.