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Refiners and consumers butted heads on Thursday at a Federal Trade Commission hearing over whether high pump prices were caused by refiner price manipulation or simple supply and demand economics.
An FTC report in March found no evidence of collusion or antitrust violations by refiners, and attributed the spike to unavoidable short-term phenomena. The report was triggered by a Midwest supply squeeze last year that sent Chicago-area gasoline prices above $2 per gallon.
But the FTC will ?broaden its scope? to examine the effect of gasoline price volatility on the U.S. economy, FTC Chairman Timothy Muris said yesterday following a public conference on refined product pricing in Washington, according to the Associated Press.
Consumer advocates raised concerns that a series of oil company mergers have allowed firms to dominate pricing in their markets, and called on the FTC to oppose future mergers. ?Every time a new merger occurs the potential for real competition decreases,? said Mark Cooper, director of research at the Consumer Federation of America.
However, oil industry officials said the run-up in gasoline prices was textbook economics -- a cold winter in the Northeast drove refiners to spend more time cranking out heating oil and less time building gasoline inventories ahead of the summer driving season, the report said.
In mid-May, U.S. retail gasoline prices set a record high of $1.71 per gallon, according to a nationwide average calculated by the U.S. Energy Information Administration. The average price has since fallen to $1.38 per gallon.
?Gasoline prices shot up dramatically ... because of supply and demand -- nothing more, nothing less,? said John Felmy, chief economist at the American Petroleum Institute, the oil and gas industry?s largest trade group.
The FTC is currently reviewing three mergers to see how, if approved, they would affect fuel prices: Valero Energy Corp.?s planned $4 billion purchase of Ultramar Diamond Shamrock Corp. and Phillips Petroleum Co.?s $7 billion bid for Tosco Corp. and Chevron Corp.?s bid for Texaco Inc.
The FTC is expected to take a hard look at the Valero/UDS combined California footprint, and California Attorney General Bill Lockyer has raised concerns over the Phillips/Tosco deal.
Mergers in the industry are not the main cause, said Philip Verleger, an oil analyst and Convenience Store News columnist. ?The proliferation of blends required by the EPA reduces storage capacity and increases volatility.?
Integrated oil and gas firms have divested over a million barrels a day of U.S. refining capacity to smaller companies, which are now having trouble finding the cash to make EPA-required environmental plant upgrades, Verleger said.