by John M. Curtis
(310) 204-8700

Copyright Jan. 12, 2007
All Rights Reserved.

hen the price of crude oil plummeted to a 20-month low of $52 a barrel Jan. 11, consumers scratched their heads, wondering when they'd see relief at the pumps. Oil prices peaked in July 2006 at 77.03. Since then, the cost on the New York Mercantile Exchange of light sweet crude has slid 33%, while gasoline prices jumped 10% since the Nov. 7 midyear election. While supply-and-demand eventually drives prices, oil companies haven't passed savings on to consumers, recording the biggest profits in the industry's history. Exxon-Mobil, the world's largest oil company, posted its biggest profit Jan. 30, 2006 for Q-4-2005 at $10.71 billion, nearly breaking that record in the subsequent three quarters. “From looking at pump prices, you'd think the price of crude oil was going up and we're in a tight market,” said Rob Schlichting, a spokesman for the California Energy Commission.

      Rising crude oil prices almost always translate into higher pump prices, while falling oil prices don't result in lower pump prices. Crude oil or gasoline inventories seem loosely connected to wholesale gas prices. Yet news about consumption in China and India typically drive NYMEX prices higher. While pump prices have edged off their peak of $2.90 a gallon April 26, 2006, they remain disproportionately high relative to the stunning collapse in oil prices. “There's no excuse for that,” said Charles Langley of the San Diego-based Utility Consumers' Action Network, baffled by oil companies' reluctance to lower gas prices. “Prices in LA should be dropping like a box of rocks right now, and it's not happening,” raising issues about industry-wide price gouging. Like the electricity industry, there's growing concerns about price-fixing and market manipulation.

      Oil companies like to blame high pump prices on California's environmentally-friendly blended fuels. California's specially blended gasoline only account for about five-cents a gallon yet the state pays on average 50-80 cents more a gallon than Oklahoma or South Dakota. This year's inventory of specially blended gasoline is 8% higher than Jan. 2006 yet prices remain higher. “You will get some retail prices dropping in the next few weeks,” said Tom Kolza, chief oil analyst for the Oil Price Information Service, predicting California could see gas-price reductions in the near future. Most analysts shake their heads trying to figure out why California lags behind the rest of the country. While there's no proof of price-fixing and market manipulation, market factors, including the price of crude oil and added costs for blended fuels, have little to do with the state's high prices.

      Oil industry trade groups continue to blow smoke when asked to explain the state's disproportionately high fuel prices. When crude oil prices plummet, gasoline inventories remain high and China and India no longer present a threat to the world's oil supply, there's less excuses to justify price increases. “I don't have a clue why crude prices are down and gasoline has or hasn't followed suit in different parts of the country. The market determines that,” said Joseph Sparano, president of the Western States Petroleum Assn., an industry trade group. When Sparano talks about “the market” setting prices, he's referring to the free market or supply-and-demand. Whether the industry admits it or not, there's growing proof that a calculating monopoly determines supply-and-demand and attempts to fix prices. Industry insiders have more than clue about how prices are set.

      When California ran out of electricity in 2000, President George W. Bush and Vice President Dick Cheney blamed the problem on a lack of power plants. It wasn't long before Enron and other power brokers were busted for gaming the market, deliberately taking power off-line to drive up prices. Six years later, without creating more capacity, California no longer has rolling blackouts and spiraling electricity prices. Like power companies, refiners like Exxon-Mobil or Chevron-Texaco shut down refineries when supplies rise and prices drop. Crude oil prices continue to drop because of an unseasonably warm winter, lowered demand and growing supplies. Fossil fuel inventories rose while demand dropped by 4%, creating the perfect market storm for a drop in prices. If growing supplies and lower demand doesn't drop prices, then there's obvious manipulation.

      Oil companies can't manipulate supplies and prices without adverse fallout on the economy. While there's been some improvement, there's no excuse for the industry to rake in record profits at the expense of businesses and consumers. Rising energy prices have fueled inflation by adding dramatically to transportation costs. Since energy companies show no compunction about gouging businesses and consumers, it's time for Congress to deal with blatant market manipulation and price-fixing. California found out the hard way during its 2000 power crisis: That energy companies can't be trusted. It's time for the oil industry to stop manipulating the market and engaging in anticompetitive practices. Industry trade groups must offer factual information not propaganda and disinformation designed to throw government regulators and consumers off track while exploiting the market.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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