By KEVIN G. HALL
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.