08-23-07 by dugan
"Insider" sends along a copy (pdf) of a preliminary report on gasoline pricing by the Washington State Attorney General. Part 1 doesn’t quite get to the bottom of the large pricing anomalies in different parts of the state. Word is that Part 2 will have a lot more to say about the oil industry’s fuel pricing.
The report does at least have industry representatives admitting that prices are what the market will bear. And the report raises some eyebrows about how pump prices got so high this spring even though refinery capacity is at an all-time high in the state and consumption is stable.
Here are Insider’s comments:
"People who work in the oil industry often break out laughing when watching reporters try to explain why the price at the pump is going up. If one small piece of truth emerges during the broadcast, its truly a miracle.
"If consumers take the time to read the recent study by the Washington Attorney General they’ll quickly see the deceptiveness of the myths spun by oil companies to explain soaring pump prices. Here are some examples:
"As in the rest of the U.S. West, which is supplied by many of the the same oil companies and refineries, the average pump price in Washington rose from $1.54 cents per gallon in December 2003 to $3.46 in May of 2007. While the companies and PR hacks tried to focus media and consumer attention on the rise in the price of crude oil, state tax rates, and other contributing factors, the study found that 93.6 cents per gallon of the rise at the pump was simply increased refinery profit margins. During the period, the Washington Attorney General reports oil companies experienced a whopping 413% increase in refinery profit margins. The bulk wholesale price charged by oil companies for gasoline far exceeded any actual increased cost of doing business (Page 3)."To further understand the “smoke and mirror show” utilized by the industry to confuse elected officials and the public about prices at the pump, consider the private responses to the study staff from the oil companies when asked how they determined the price to charge for gasoline. The answer was clearly not the price of crude, taxes, or any other costs of doing business. Remarkably, all the responses were opposite of the public relation spins about crude prices, Wall Street jitters, etc. They pretty much admitted they simply charge the highest price they think consumers are willing to pay (Page 11).
"The report also breaks the code on the huge profits that can be generated when oil companies intentionally reduce the inventories (supply) of gasoline like they did this spring. “The price of gasoline in not determined by its costs or the components of its costs but rather by the availability of gasoline (supply) and the demand for gasoline.” Footnote 18, Page 23). The sentence destroys the common myth spread by the industry that components such as ethanol or other processes utilized to produce cleaner-burning fuel are the culprits.
"The next time you see the media hyping environmental restrictions, crude oil prices, or market jitters, remember the lessons offered by this report. You might as well laugh, since the oil boys back at the corporate offices have been laughing at you for decades."
See you at the pump,
Insider