US: Domestic Oil Companies, Not OPEC, Mostly to Blame for High Gas Prices

Publisher Name: 
Consumers Union

In testimony today before the
Senate Judiciary Committee's antitrust subcommittee,
two leading consumer groups placed much of the blame
for higher gasoline prices on domestic oil companies.
The groups noted that consolidation in the refining
industry has enabled large oil companies to restrict
the supplies that make it to the pump, sending gas
prices higher and leading to windfall profits.

"Blaming high gas prices on high crude oil prices
ignores that fact that over the past few years, the
domestic refining and marketing sector have imposed
larger increases on consumers at the pump than crude
price increases would warrant, said Mark Cooper,
director of research at the Consumer Federation of
America. "While OPEC's tightening of supplies hasn?t
helped the situation, a lot of the blame rests with
American oil companies squeezing more and more profit
out of American consumers."

According to Consumers Union and the Consumer
Federation of America, the gasoline refining and
marketing segments of the domestic industry have
increased pump prices by $50 billion to $60 billion in
the past four years. This is apart from any price
increases brought on by the Organization of the
Petroleum Exporting Countries (OPEC) tightening
supplies. This means that up to $60 billion of
after-tax windfall profits have gone to the domestic
petroleum industry over that period.

Much of this windfall can be attributed to a wave of
mergers in the 1990s that dramatically increased
concentration of the industry into the hands of a
small number of giant companies, whose decisions
restricted capacity, undermined independent suppliers
and rendered markets uncompetitive and vulnerable to
manipulation.

"With the oil companies exerting so much power over
the market, it's difficult to bring prices down in the
short-term," said Adam Goldberg, policy analyst with
Consumers Union, who is urging the federal government
to shine a spotlight on industry practices. "One way
to discourage market manipulation is to institute a
windfall profits tax. As long as huge windfall profits
can be made, private sector market participants will
have a strong incentive to keep markets tight."

"In the long-term, policymakers should concentrate on
breaking OPEC's pricing power," Cooper continued.
"That would relieve a lot of the pressure from
consumers energy bills. But that alone isn't enough
to get the oil industry to start pricing gasoline at
the pump fairly."

Other long-term solutions proposed by the consumer
groups, include:

-Restoring reserve margins by increasing both fuel
efficiency (demand-side) and refining production
capacity (supply-side)

-Increasing market flexibility trough stock and storage
policy

-Discouraging private actions that make markets tight
and/or exploit market disruptions by countering the
tendency to profiteer by withholding of supply

-Promoting a more competitive industry.

AMP Section Name:Money & Politics