- The Washington Times - Monday, September 5, 2005

Companies say lowering pump prices would deplete supply

Consumers expecting the high prices at the pump to prompt the oil industry to suddenly become benevolent should think again.

The industry says it has very little, if any, control over the cost of gasoline, which is decided by markets and traders in New York. The industry contends that if it were to drop the price and take a loss to help consumers in a time of need, there would be no gasoline left.

“They would be drained dry, and how will that help consumers?” said John Felmy, chief economist for the American Petroleum Institute (API), an advocacy group that speaks to the pricing issue for the oil industry, which declines to do so.

He’s not alone in that thinking.

“Let’s say Exxon decided, ‘We’re going to be benevolent and we’re going to reduce the price of gasoline at all of our terminals by 20 percent,’” said Dan Gilligan of the Petroleum Marketers Association of America (PMAA). “They’d be absolutely empty by noon and they wouldn’t have a drop of gasoline left because they would be overrun with demand.”

Most analysts believe oil producers and refiners stand to profit from the situation, which raises the ire of consumers who don’t believe their arguments about gasoline pricing.

“It makes no sense to allow a handful of oil companies to make enormous amounts of profits off a national tragedy,” said Tyson Slocum, research director in the energy program of consumer rights group Public Citizen. “It’s unbelievable that it’s even a debate right now.”

Mr. Slocum doesn’t ask for a consumer handout, but does favor temporary government price controls.

“It’s a no-brainer that price controls are necessary right now,” he said.

Oil companies have a long-standing policy to not discuss gasoline prices.

“Well, we don’t set prices. Prices are set by supply, demand and competition. I’m not going to talk about pricing, that’s an industry issue,” said Michael Barrett, a Chevron spokesman.

However, Exxon Mobil Corp. did say that it is making branded fuel available to its independent retailers and distributors at wholesale prices below those set in New York.

Chevron, like the others, referred all questions about gas prices to API, where Mr. Felmy defends the industry as having average profit margins and helpless to control prices.

“We make 7.7 cents on the dollar,” he said. “You compare that to other industries. BusinessWeek [magazine’s] Corporate Scoreboard showed that the average industry last quarter made 7.9.”

Mr. Felmy said price controls favored by consumer groups are a bad idea.

“Those who don’t remember the past are doomed to repeat it,” he said. “In the 1970s, we tried that and it was disastrous. We had gas lines in the ‘70s that were enormous wastes of energy. The government fails in this area.”

Mr. Slocum, however, is not alone in thinking the government should step in.

A poll by the Associated Press released Friday showed that most Americans think President Bush should make the soaring price of gasoline — which has topped $3.50 a gallon in several U.S. cities — his No. 1 domestic priority, ahead of the economy, jobs and terrorism.

Consumers did receive a boost from the White House last week, as well as an unexpected offer from overseas.

To help cover the loss of Gulf of Mexico production, the Bush administration Friday announced plans to begin selling oil from the nation’s Strategic Petroleum Reserve.

And the Europeans and Japan promised to tap their gasoline and crude reserves to help the United States get through this crisis.

All told, the United States. and other industrialized nations will draw down about 63 million barrels from their emergency stockpiles over a month’s time.

“There will be additional supply available of both crude oil and refined products,” Energy Secretary Samuel W. Bodman said. “And with additional supply, I would expect that there would be some decline in price, but that will be a function of the marketplace.”

Under the plan, the federal government today will begin taking bids on 30 million barrels of crude from the 700 million-barrel U.S. petroleum reserve.

This will be the first time the federal government has drawn down oil from the reserve in an emergency since the Persian Gulf War.

• Distributed by Knight Ridder/Tribune Business News

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