Slumping crude oil prices are having little effect on gasoline prices, and that has three U.S. Senators requesting a probe whether U.S. oil refiners are cutting back on gasoline production to keep pump prices high.
Missouri Sen. Claire McCaskill, New York Sen. Charles Schumer, and Senate Majority Leader Harry Reid, Nev., have asked the Federal Trade Commission to review allegations of potential wrongdoing by oil companies and refiners. The price-fixing probe is further pressure on the big oil companies that Democrats have portrayed as out of touch with consumers and not worthy of billions of dollars of federal tax breaks.
“If true, this behavior is a direct affront to the American people who are still struggling with the economic downturn,” the Senators said in a letter to FTC. Last week oil executives were grilled by a Senate committee over why an industry with $35 billion in annual profits in the first quarter deserves a $4 billion federal subsidy.
Senators seeking the investigation cite recent Energy Department data showing that U.S. refiners are operating only at 82 percent capacity. “Why are they producing less gasoline for the American consumer?” asked McCaskill. “Maybe it’s because they decided to reduce supply in order to increase price.”
Oil prices fell again on Tuesday, declining more than 1 percent as weak economic data fueled concerns about demand. Oil has declined 15 percent so far during May. Brent crude for July delivery on the New York Mercantile Exchange closed yesterday at $109.24 per barrel, down $1.60. Crude for June delivery closed at $96.07 per barrel.
Refiners call their gasoline profit margin the “crack spread,” and that margin retreated about $3 yesterday to slightly more than $26 per barrel. The crack spread had been above $40 per barrel on May 10. Last week wholesale margins for gasoline sold in the Midwest were more than $1.20 per gallon.
U.S. gasoline prices averaged $3.97 last week, down a penny from the previous week, but $1.06 per gallon higher (38 percent) than the same week a year ago.
The Energy Information Administration said last week demand for gasoline had fallen 2.9 percent in the last month, while refineries were using only 81.7 percent of their capacity. Refineries are also exporting more gasoline, especially to Mexico and Latin America. In February the U.S. exported 400,000 barrels of gasoline per day.
Senator Schumer said it does not make sense for refiners to have low production levels and also export record amounts of gasoline when U.S. prices are high.
“Sounds like a recipe to keep prices high. We don’t know if this is a smoking gun but it sure requires a close look,” he said.
While refineries are operating at lower capacity levels, U.S. gasoline inventories remain high, rising almost 1.3 million barrels to about 206 million barrels, the EIA says.
Gasoline prices fell this week for the first time in eight weeks, and industry analysts say they expect retail gasoline to fall “significantly” over the next few weeks.