Senate probe says some oil companies forcing up price of gas

WASHINGTON -- The concentration of oil companies and refineries among a few owners allows producers to manipulate gasoline supplies and force up prices to increase profits, a congressional report concluded Monday.

The investigation by a Senate subcommittee found that intentional reductions in gasoline supplies tightened fuel markets and helped produce some of the sharp price spikes over the past three years, especially in the Midwest.

"In a number of instances, refiners have sought to increase prices by reducing supplies," says the 396-page report released by Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Investigations Subcommittee.

Levin said "the concentration of oil companies is so heavy that it allows them to manipulate supply ... without fear of competition," to the detriment of consumers.

Levin urged tightening of antitrust laws and a tougher review of oil industry mergers to curtail market abuses by today's dwindling number of industry players.

He noted that in some European countries companies are required by law to keep in storage a minimum amount of oil or gasoline to avert shortages.

Red Cavaney, president of the American Petroleum Institute, said the Senate panel's report vindicates the oil companies because -- as have previous investigations -- it found no collusion or illegal market activities in setting gas prices.

He said companies have a right, if they act alone, to make market dedications on supply.

"As long as the company or individuals act on their own, when they decide to put there supply on the market is their decision and its legal. ...It's part of the free enterprise system," said Cavaney in an interview.

Levin acknowledged the investigation "did not discover any evidence of collusion," but he argued gasoline markets are so "highly concentrated ...you don't need collusion to have a big artificial impact on supply" and, in turn, prices.

The report, written by the Democratic staff of Levin's subcommittee, cited several internal memos, dating back to 1998, from major oil firms that outline a general strategy of using supplies to influence prices.

An internal "confidential" memo written in 1999 by BP Amoco -- now known only as BP -- suggests "significant opportunities to influence" the balance of supply and demand in the tight Midwest gasoline market to assure higher prices.

Last summer, the Senate report said, "major refiners reduced gasoline production even in the face of unusually high demand ... contributing significantly to the price spike."