FTC probe of gasoline prices has eye on refiners

By KEVIN G. HALL
McClatchy Newspapers

WASHINGTON – The Federal Trade Commission confirmed Monday that it’s opened an apparently broad investigation into the companies that turn crude oil into gasoline, looking into whether they have engaged in anti-competitive practices or manipulation to drive up prices at the pump.

The agency had little to say publicly about the probe, beyond what appeared in a letter sent Monday to Sen. Maria Cantwell, D-Wash., which provided some detail about the unusual investigation.

At issue in the FTC’s probe are refining margins, the difference in value between petroleum products leaving the refinery and the price of their chief component, crude oil.

“The Energy Information Administration reported that as of early May, U.S. refiners’ margins had increased more than 90 percent since the beginning of 2011, and U.S. refiners at that time were using only 81.7 percent of their capacity, representing a 7 percent reduction from that same period in 2010,” FTC Chairman Jon Leibowitz said in the letter to Cantwell.

“In light of these and other developments,” the FTC letter said, the commission has authorized the use of “compulsory process,” which somewhat resembles subpoena power to demand records. These records could be sought, Leibowitz said, from oil producers, refiners, transporters, marketers and financial traders who operate in both the physical market where oil is delivered, and the futures market, where contracts for future delivery of oil are traded – and where seven in 10 traders will never take possession of a barrel of oil.

Peter Kaplan, a spokesman for the FTC, said “we are going to decline to comment” beyond the letter sent to Cantwell.

That letter was surprisingly detailed, however, in laying out the potential scope of the probe. It noted that it would be happening under rules against market manipulation that were pushed by Cantwell during a 2007 revamp of energy laws. The revamp gave the FTC powers similar to those against market manipulation enjoyed by the Federal Energy Regulatory Commission, which has conducted 93 investigations into manipulation since 2005.

“The information to be secured through this investigation may include, but is not limited to, utilization and maintenance decisions, inventory holding decisions, product supply decisions, product import and export strategies and volumes, product output decisions, capital planning decisions, product margin decisions and profitability, and any other information which may be relevant to determining whether there is a reason to believe that there have been violations,” the letter to Cantwell said.

Because refining was so profitable during a period of low utilization of the nation’s total refinery capacity, there’s the appearance that supply was deliberately limited to create artificial scarcity of gasoline. The American Petroleum Institute earlier this year told McClatchy Newspapers that refiners are simply more productive, squeezing ever greater amounts of product out of the same barrels of crude oil.

The National Petrochemical and Refiners Association – the lobby for large refiners – expressed confidence in a statement to McClatchy that its members will be cleared of any wrongdoing.

“Our members obey the law. Dozens of investigations of gasoline price fixing over the years have generated plenty of headlines and political hyperbole, but have failed again and again to find any evidence of wrongdoing. This will happen again, and the only thing that will be accomplished by this new investigation is to waste taxpayer dollars,” NPRA President Charles Drevna said. “I look forward to the news conference where the FTC and the elected officials who demanded this investigation will announce that – like every past investigation – this new one has found no wrongdoing by America’s fuel manufacturers.”

Past FTC investigations have looked at collusion and anti-competitive practices, but the newly empowered FTC will now look at market manipulation, not just what’s going on in the refinery but where the refinery or integrated oil company might be invested in financial speculation or the actual market for physical delivery of oil.

“We’re glad they’re using the new authority; the American public deserves to have aggressive policing of these markets by federal regulators,” Cantwell told McClatchy, adding that “we hope that they will not look at just refiners but the integrated schemes that they could use given their financial positions.”

The FTC action comes on the heels of similar action taken by the Commodity Futures Trading Commission, which announced in late May a rare prosecution involving alleged manipulation of the futures and physical markets for oil.

President Barack Obama announced earlier this year that the Justice Department was spearheading an inter-agency task force called the Oil and Gas Price Fraud Working Group. It was designed to see if fraud and manipulation were behind the sharp climb in oil prices this year despite weak demand in the U.S. and other developed economies. Both the FTC probe and the CFTC’s prosecution are actions independent of that task force effort.

Oil prices this year peaked at $113 a barrel in May, a spike that came amid a weak recovery. Many economists now think there is a speculative premium being added onto the price of oil, slowing economic growth, hampering job creation and decreasing demand for oil and gasoline.

Read more: http://www.miamiherald.com/2011/06/20/2275930/ftc-probe-of-gasoline-prices-has.html#ixzz1PrEMwApR

12 Comments

  1. oldcheme

    so where was this investigation in the 1980′s and 1990′s when fully absorbed cost margins were NEGATIVE. I guess the consumers coop was naked selling gasoline to manipulate the market. Get real, this whole invetigation is DOJ grandstanding B.S.

    #1
  2. Earl Richards

    OPEC, Libya and the laws of supply and demand are not responsible for high gasoline and oil prices. Oil prices are dictated by the fraudulent “round-trip” trades of the “dark pool” trading in the Intercontinental Exchange(ICE) in Atlanta. The international Big Oil/big banking cabal owns ICE. ICE operates outside of U.S. law. The Commodities Futures Trading Commission does not have any jurisdiction over ICE, bribed by Big Oil. ICE’s energy traders and speculators can be ratchet-up the oil price anytime thy feel like it, for their own profits and on the behalf of Big Oil, through the use of “round-trip” trades. Google the “Global Oil Scam.” ICE is a super Enron. Oil is too critical a resource to be controlled by greedy speculators, greedy traders and greedy corporations. If the Working Group does not investigate ICE, then, it is a waste of time and taxpayers’ dollars. The Working Group has to seize, immediately, the trading records of ICE, before they are destroyed.

    #2
  3. liven-n-iraq

    The Fed keeps looking and finding nothing. Much of the loss in refining is due to old refineries shutting down completely and others due to corporate mergers. But the Fed likes to hype attrocities by “big oil” so they’ll keep looking and insuating that refineries are to blame.

    #3
  4. Dollar

    Just more of an organized smear job against the oil industry.

    Average guy, with a wife , two kids, a mortgage and a dog …… doesn’t have time to read the news in depth, he and his wife just read headlines ……… and this kind of ” investigation ” is meant to get headlines and make Average Joe think they are doing something about those evil oil men.

    @Earl Richards, the ICE is located in London. I might be wrong, but I don’t think I am.

    And are you going to also seize records from commodity exchanges in Dubai and Singapore ?

    You an ambitious fellow .

    Did you have your Che Guevara hat on, when you wrote that ?

    #4
  5. Dollar

    Here ya go Earl Richards, the socialist ( up with proletariat, btw )

    Oil is traded in London ………..

    IntercontinentalExchange (NYSE: ICE) operates leading regulated exchanges, trading platforms and clearing houses serving global markets for agricultural, credit, currency, emissions, energy and equity index markets.

    ICE operates three futures exchanges including London-based ICE Futures Europe, which hosts trading in half of the world’s crude and refined oil futures contracts traded each day. ICE Futures U.S. and ICE Futures Canada list agricultural, currency and Russell Index futures and options markets.

    #5
  6. DucMan

    You know if oil companies had so much power to fix prices, then why did oil refineries lose vast amounts of money in 2008 and 2009 and barely made a profit in 2010. Seems like they would fix things to always make money.

    #6
  7. Dollar

    @DucMan, the better question is why did oil companies tolerate the extremely low prices of 1985 to 2002 ?

    Why did Dupont spin off Conoco in 1999 ? How stupid would that be, if they could manipulate price ? ( and seriously, how stupid are the Harvard MBA’s at Dupont, they bought Conoco at the peak of the 70′s oil boom and paid a premium, then they sold Conoco at the lowest time in the history of the oil industry , that’s classic )

    Or consider this about speculators, its common wisdom that speculators drive up the price of oil …….. but then, who are all these traders taking short positions on those contracts ? Every contract has two sides, so who are the dummies that don’t know speculators are driving the price up ?

    Heck , everbody knows its them dadgummed speculators driving the price up.

    Ppppfffftttt !

    #7
  8. ntangle

    I’ve never viewed OPEC, other NOC’s, or the major IOC’s as being victims of commodity speculators. But in the US, especially a couple of PADD’s, there is the potential for undue price influence by companies or groups of companies with substantial market power as well as the largest physical assets. Don’t know if this FTC investigation will find anything, but it’s not so hard for me to believe.

    #8
  9. Earl Richards

    For Dollar:

    ICE is located in Atlanta, Geargia and ICE Futures Europe is located in London, England. ICE Futures Europe is a subsidiary of ICE. Google the “London-Dubai Loophole.” The Financial Services Authority in London, England is slightly, more useless than the Commodities Futures Trading Commission in the US.

    #9
  10. KB

    Hey Earl…since you like to “Google” for all your info…try this one; “fantasyland”. How about, “life before oil”. Or, “Everything is one huge conspiracy”.

    #10
  11. Dollar

    yeah but Earl, oil, namely Brent crude, is traded in London on the ICE, its not traded in Atlanta.

    Look it up.

    #11
  12. Earl Richards

    For Dollar:

    Brent crude is traded in the ICE Futures Europe, and West Texas Immediate is traded on the ICE, in Atlanta, and on the NYMEX.

    #12