07-23-07 by dugan
When is the oil industry most like Enron? When it’s draining supplies of gasoline instead of building them, guaranteeing record pump prices that empty your wallet into their profits. That’s the plain-language bottom line of a report released today by OilWatchdog (The press release is below this post.)
We called the study "The Katrina Syndrome," because refiners seem to
have learned something from Hurricane Katrina: if gasoline supplies
are short, big refinery profits still boost the bottom line.
There’s been better reporting this year by major media on the spate of refinery outages that have affected prices, but there’s more to it: Oil companies and their refineries failed to ratchet up supplies, especially in the U.S. West, during the off-season in the fall and winter as they historically have done. By keeping the storage tanks half full (half empty), they created conditions that would boost gasoline prices during even routine maintenance, much less the extra downtime caused by their creaky, aging, overloaded system.
The study, conducted for OilWatchdog by independent oil analyst Tim Hamilton, showed that as gasoline prices were shooting up to a new national record of $3.15 a gallon this spring, crude oil prices rose very slightly, and were well under last year’s prices in the first three months of last year. That shouldn’t happen, and low inventories at the beginning of spring were the underlying cause.
If oil companies were selling a normal consumer product, they’d be booed from the marketplace for cutting production and raising prices. In the gasoline business, less supply just means higher profits. That’s reason enough for government to step in, with investigation and oversight of operations, costs and profits of the refining business.
The refinery business used to be regulated, but was deregulated in 1982 under President Reagan. The reasoning then was that oil companies would be more free to invest and compete, and consumers would benefit. Since then, the market has shrunk to about half the original companies, refinery capacity in relation to demand has withered for lack of investment, and oil profits are in their third consecutive year of record results.
Government stepped back into the electricity regulation business after Enron. Now it need to clean up after Big Oil.
It’s time to tip the balance back to the middle of the scale.