Sept. 8, 2005 – As oil prices rose over the last several years, some domestic oil companies decided to reduce output, causing prices to spike even higher, according to internal memos from three major fuel companies released yesterday by a consumer watchdog organization.
- High Gas Prices Result of Industry Profits, Watchdogs Say (Aug 22, 2005)
Yesterday, The Foundation for Taxpayer and Consumer Rights (FTCR), a California-based consumer watchdog, published corporate memos showing a purposeful effort to reduce domestic gasoline production on the part of three major oil companies: Mobil, Texaco and Chevron.
As previously detailed by The NewStandard, organizations keeping an eye on the oil industry have insisted that the recent rise in gasoline costs is due, in part, to an intentional effort by oil companies to keep prices high and profit margins wide.
"Large oil companies have for a decade artificially shorted the gasoline market to drive up prices," FTCR President Jamie Court said in a press statement. "Oil companies know they can make more money by making less gasoline."
The three memos, all from 1996, provide evidence for such claims that reduced refining capacity in the US â€“ a major factor in the price of gasoline â€“ is no accident, but instead has been engineered by the oil industry.
The March 1996 memo from Texaco reads: "As observed over the last few years, and as projected well into the future, the most critical factor facing the refining industry on the West Coast is the surplus refining capacity, and the surplus gasoline production capacityâ€¦. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline."
An internal document from Mobil shows that company was thinking along the same lines and sought to prevent a smaller, out-of-business competitor from obtaining an environmental waiver, reopening and selling cheaper fuel.
"Needless to say, we would all like to see Powerine stay down," a Mobile employee wrote. "Full court press is warranted in this case and I know Brian and Chuck are working this hard. One other thought, if they do start up, depending on circumstances, might be worth buying out their production and marketing ourselves. Especially if they start to market below our incremental cost of production."
For its part, Chevron was also thinking about how restricting refinery capacity would affect prices. "A senior energy analyst at the recent API convention warned that if the US petroleum industry doesnâ€™t reduce its refining capacity, it will never see any substantial increase in refining margins," noted an internal document.
Other companies have been implicated in price manipulation through adjusting refinery capacity as well. Last year, FTCR began an ultimately successful battle to prevent Shell Oil Company from shuttering its Bakersfield, California refinery following the disclosure of a number of documents allegedly demonstrating the companyâ€™s desire to manipulate the fuel market.
Oil costs have been generally rising slowly and steadily for the past several years, with an accelerated yearly growth since 2002, according to data from the US Department of Energy. Prices dropped between 1997 and 1999 and again from 2001 to 2002.