NEW YORK -- U.S. Senator Charles Schumer (D-N.Y.), speaking at a Hess gas station in Manhattan, called Tuesday for a federal investigation to see if oil companies and refiners are deliberately withholding gasoline production, taking advantage of the normal switch from winter gasoline to summer gasoline in an attempt to bid up prices, said a CNNMoney.com report.
Schumer pointed to a 15% rise in pump prices to $2.97 a gallon in New York City over the past month. "The oil companies are just raising the prices up and up and up. The question is are they doing [image-nocss] this based on the laws of supply and demand or is something else at work," Schumer told reporters at a press conference, added a Reuters report.
"The bottom line is they are producing at 85% capacity when they should be producing over 90%," said Schumer. "Are they scaling back production? Only by subpoenaing the companies and looking in their books will we get that answer."
Schumer said following a wave of mergers by top oil companies in recent years, gasoline prices were easier to manipulate, increasing the need for Congress to make sure the industry is not ripping off consumers. "Oil companies should be using their maximum refining capacity instead of possibly minimizing it, and the [Federal Trade Commission] needs to make sure this process is completely transparent so that prices don't continue to shoot up," he said.
Whether Schumer's proposal will result in lower prices at the pump in a matter of debate. An FTC spokesperson told CNNMoney.com that it will take the senator's letter seriously and will respond appropriately. He said that two previous investigations into unfair business practices by the oil industry conducted in 2000 and 2001 turned up no evidence of wrongdoing.
Results of another investigation, over price fixing in the wake of Hurricane Katrina, are expected next month, the financial website said.
Representatives for the oil industry flatly denied Schumer's suggestions, it added. "Prices are high, there is no incentive to hold [gas] back," Bill Bush, a spokesperson for the American Petroleum Institute, told the website. "If you have a gallon of gas, you want to get it out in this market."
He said refineries are only operating at 85% capacity because some are still recovering from last fall's hurricanes along the Gulf Coast. He added that some refineries are undergoing more maintenance than usual this spring, maintenance that was put off following the hurricanes in order to avoid taking the refineries off-line at the time.
John Felmy, API's chief economist, said Schumer's call was "nothing more than political rhetoric with no basis in fact." Felmy suggested Schumer stop the political grandstanding and call for things that will actually bring down gasoline prices, which he said include more domestic oil production, greater conservation efforts and provisions to make it easier to build more refineries.
API issued the following official statement:
Any charge that oil companies are intentionally driving up prices ignores the very obvious fact that refinery capacity has been lower because the industry is still in the process of recovering from the extensive damage caused by Hurricanes Katrina and Rita last summer. It is a fact that three refineries remain closed since the hurricanes. The combined capacity of those refineries is 804,000 barrels per dayor about 5% of U.S. refinery capacity, the same amount Senator Schumer mentions.
It also fails to take into consideration that refiners are facing the complicated challenge posed by the repeal of the RFG oxygen mandatewhich may result inhaving to add more ethanol to reformulated gasoline, making it more expensive to produce. And it ignores the fact that some refineries are undergoing routine maintenancenecessary for the safety of their plants, their employees and the surrounding communitiesthat had to be delayed because of the hurricanes.
Finally, comparing today's gasoline prices to those of 1998 is extremely misleading because such a comparison does not take into account the fact that in 1998 crude oil was selling for $15 a barrel (in 2006 inflation adjusted dollars). Today it is around $70.
U.S. oil prices traded at an all-time high near $71 a barrel Tuesday due to concerns over supplies from Organization of Petroleum Exporting Countries (OPEC) members Iran and Nigeria, pushing up gasoline prices further.
Energy experts say it is unclear how high gasoline prices would have to climb to make vacationers shift their summer driving plans. Schumer said some forecasts showed U.S. motorists could pay up to $4 a gallon, and said some consumers were already modifying their behavior. "People are making plans to now to cut back on their vacation, they are cutting back on purchases all because gasoline prices are high," he said.
In a speech nominating Rob Portman as the new director of the Office of Management & Budget (OMB), President Bush said, Let me remind people that these high gasoline prices are caused by primarily three reasons: One, the increase in the price of crude oil. It's one of the reasons I stood up in front of the Congress and said, we've got to have strong and active research and development to get us to diversify away from crude oil. It's tight supply worldwide, and we've got increasing demand from countries like India and China, which means that any disruption of supply or perceived disruption of supply is going to cause the price of crude to go up. And that affects the price of gasoline.
Secondly, there's increasing demand. At this time of year people are beginning to drive more, getting out on the highways, taking a little time off, and they're moving around. And that increasing demand is also part of the reason the price of gasoline is going up.
And, thirdly, we're switching fuel mixes. The summer fuel mix is different from state to state, and is different from what is being used in the winter. And, therefore, the combination of these creates higher gasoline prices. And I'm concerned about higher gasoline prices. I'm concerned what it means to the working families and small businesses, and I'm also mindful that the government has the responsibility to make sure that we watch very carefully, and to investigate possible price gouging. And we'll do just that.
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