Essex502
05-17-2004, 10:08 AM
Gasoline Surges Under Bush Following Refinery Mergers (Update1)
May 17 (Bloomberg) -- President George W. Bush allowed an increase in oil refinery mergers to go unchecked since he took office and may have contributed to the highest gasoline prices in 20 years as the November election approaches.
The Bush administration approved 33 takeovers totaling $19.5 billion, on top of 21 deals worth $7.3 billion under President Bill Clinton, Bloomberg data shows. Reduced supplies were already pushing up gas prices in Clinton's term, according to a Federal Trade Commission study conducted after pump prices rose to more than $2 a gallon in Milwaukee and Chicago in 2000.
``We're in a much worse position than we were when the federal government broke up the Rockefeller oil companies of the early 1900s,'' Jon Meade Huntsman, a registered Republican and founder of Salt Lake City-based Huntsman Co., the largest privately held chemicals maker, said in an interview. ``The average guy on the street is getting killed because this administration does not care.''
Americans are paying 30 percent more for regular gasoline than a year ago, an average of a $1.94 a gallon, and a poll by American Research Group May 3-6 showed voters becoming concerned. Oil futures have averaged $28.62 a barrel since Bush took office, 42 percent higher than the average during Clinton's two terms. Oil reached a record $41.38 a barrel on Friday.
Energy Bill
Bush, 57, who owned a Texas oil company, Arbusto Energy, before getting into politics, and Vice President Dick Cheney, 63, former chairman of Halliburton Co., the world's biggest oilfield services company, chose to focus on broadening access to federal land for oil exploration and developing renewable energy sources such as corn-based ethanol to minimize price volatility. The administration's proposed energy bill remains stalled in Congress.
Democratic presidential candidate John Kerry, 60, a four- term Massachusetts senator, has called on Bush to ``come up with a real plan'' to lower gas prices that considers more options such as cutting back on oil going into the U.S. Strategic Petroleum Reserve. Bush has rejected a reduction in the oil reserves.
``With gas prices expected to go over $2 a gallon next month, the White House needs to do more than just pay lip service to a problem that is threatening to exacerbate the weak economy,'' Kerry campaign spokesman Phil Singer said.
Refiners Benefit
Under Bush, the FTC hasn't tried to block any proposed refinery takeovers. During Clinton's eight years in office, the government sued once to block an oil industry merger. In February 2000, the FTC sought to stop BP Plc's $33.1 billion purchase of Atlantic Richfield Co. after concluding the combination could lead to higher prices of oil pumped from Alaska. BP completed the purchase in April 2000 after agreeing to sell oil fields in Alaska and terminals and pipelines in Oklahoma.
The rise in gasoline prices helped refiners generate the highest margins from refining crude oil into gasoline and other fuels in the first quarter since at least 1990. ConocoPhillips, the largest U.S. oil refiner, last month posted its biggest quarterly profit since the 2002 acquisition that formed the company. ChevronTexaco Corp., the second-biggest U.S. oil producer, said earnings rose 33 percent to the highest level since a 2001 merger formed the company. Chevron's first-quarter refining profit doubled.
Exxon Mobil Corp., the second-largest U.S. refiner, on April 29 reported its highest first-quarter refining earnings in 13 years. Valero Energy Corp., the No. 3 U.S. refiner, said on April 28 that profit will almost triple in the current quarter after increased demand for gasoline spurred a 46 percent earnings gain in this year's first three months.
Chicago and Milwaukee
The FTC investigated soaring gas prices in Chicago and Milwaukee in the spring of 2000, concluding that three companies contributed to the increase by cutting production 23 percent for summer gasoline blends required by the Environmental Protection Agency to control pollution.
The March 2001 report, two months after Bush took office, said the companies produced only enough to supply their own gas stations. The cuts weren't illegal because the companies acted independently of each other, according to the report prepared under Clinton's FTC chairman, Robert Pitofsky.
``Continuing to approve mergers within the domestic refining industry was counterproductive in light of the very high prices consumers were paying,'' said Tyson Slocum, energy policy research director for watchdog group Public Citizen.
Concentration
From 1993 to 2003, the market share of the five-biggest U.S. refiners grew from 35 percent to 52 percent, according to Public Citizen. For the top 10 refiners, market share rose from 56 percent to 79 percent. The Consumer Federation of America says 77 percent of the market on the East Coast and 67 percent on the West Coast were controlled by the top four refiners as of 2000.
``Any time you have a Republican administration there's going to be more reception to these larger corporate deals,'' Bill Andrews, who helps manage $3 billion at CS McKee & Co., said in an interview. ``The change of administration had an impact.''
Senator Carl Levin, 69, a Michigan Democrat and ranking Democrat on the Permanent Subcommittee on Investigations, said in 2002 that the FTC ``needs to be more cautious about approving mergers.'' Congress should consider requiring oil companies to hold set levels of gasoline inventories, Levin said.
Regional Rules
The FTC reviews regional concentration when considering refinery mergers, said general counsel William Kovacic.
``It may be possible in selected markets for individual firms to unilaterally increase prices, particularly where there are specific supply disruptions, but the capacity to do that is a separate question from the question did the mergers make it easier,'' Kovacic said. ``We think, and again it's a fair point for debate, the mergers haven't contributed to this.''
Kovacic said regional fuel requirements that prevent some types of gasoline from being sold in different markets may be more to blame for crimping supply. Different states have their own requirements for additives such as ethanol used to meet federal pollution rules. California, for example, won't allow the use of gas blended with an ethanol alternative, methyl tertiary butyl ether, or MTBE, because of concerns the petroleum-based chemical will foul water supplies.
``We have suggested in our comments to other agencies that it would be helpful if there were a more integrated approach to competition policy,'' Kovacic said.
`Crazy Quilt'
California and New York have requested waivers from Clean Air Act requirements to help lower gas prices. Guy Caruso, head of the Energy Department's statistical arm, said waivers would do little to lower gas prices this summer because refiners have already decided what gasoline blends they will produce. Different fuel blends can't be mixed without violating separate federal regulations.
``This whole crazy quilt patchwork system of environmental regulation'' needs to be addressed, CS McKee's Andrews said. ``I don't think there's anything they can do'' between now and the Nov. 2 presidential election, he said.
Federal Clean Air Act rules add from 4 cents to 8 cents a gallon to the price of gasoline, the Environmental Protection Agency estimates. In 2001, the EPA opened an inquiry into how special gasoline blending requirements should be addressed. Only Congress can change the Clean Air Act requirements, said John Millett, an EPA spokesman.
``It takes tremendous capital expenditures just to maintain a position in the industry due to the onslaught of environmental, mostly clean air, regulations,'' said Charles Drevna, a spokesman for the National Petrochemical & Refiners Association in Washington.
Market Power
Retail gasoline prices in California should be linked more closely to the price of oil than they are, said Justine Hastings, an assistant economic professor at Yale University. The correlation is also weak in Arizona and Illinois.
``In these areas where the markets don't seem to be as competitive, there's evidence that firms are able to exercise market power due to the fewer number of competitors in refining and retailing,'' Hastings said. Sound like the electricity marketplace a few years ago?
Crude oil prices account for almost half of the cost of gasoline, the Energy Department says. Refining, distribution and marketing costs make up one fourth of the price and taxes account for the rest.
Oil futures rose 30 cents, or 0.7 percent, to settle at $41.38 a barrel in New York Friday. Oil prices are up 27 percent this year partly on concern that terrorists may try to cripple exports from the Middle East, where about a third of world supply is pumped.
Missing the Point
Kerry and other Democratic lawmakers including Senators Charles Schumer, 53, of New York and Jeff Bingaman, 60, of New Mexico have called on Bush to suspend oil deliveries into the nation's Strategic Petroleum Reserve until prices drop.
The debate in the presidential campaign over crude oil supplies misses the point, ConocoPhillips Chief Executive James Mulva, 57, said at a meeting with reporters this month. ``There is plenty of oil on world markets. It's a question of limited refining capacity.''
Between 1977 and 2002, the number of U.S. refineries dropped to 153 from 282. Refining capacity over that period has increased 2.4 percent to 16.8 million barrels a day from 16.4 million barrels a day, according to the Energy Department. U.S. demand for gasoline has grown 27 percent in that period.
ConocoPhillips, which produces a sixth of the nation's gasoline, said its plants are operating at 97 percent of capacity. No new refineries have been built in the U.S. since 1976 because of the difficulty in getting approval to build plants and the cost of construction, said Drevna of the National Petrochemical & Refiners Association.
European gasoline prices are at their highest recorded levels due to demand from the U.S. Monday's prices closed at $462 a metric ton, matching record prices reached earlier in the month. The average price of wholesale European gasoline in 2003 was $293.57 a metric ton.
`Isolated Markets'
``We are getting more isolated markets,'' Richard Gilbert, who chairs the economics department at the University of California at Berkley, said in an interview. ``We do not have a coherent energy policy.'' Gee...and we have oil men running the government...could this be accidental?
Dan Tulis, who manages $20 million at Elco Management Co. including shares of ChevronTexaco and BP Plc, said mergers shouldn't be blamed for higher gas prices. Demand from Asia has boosted the price of crude oil, he said. Many refineries may have been saved from closing because of the mergers, he said.
``If they didn't put them together and they closed the refineries down, it would be worse,'' Tulis said.
The increase in different fuel blends is making production less flexible and the Bush administration should work with state governments and companies to reduce the number of fuel types, Senator Robert Byrd wrote in a May 14 letter to Bush.
Byrd, 86, a Democrat from West Virginia, also called on Bush to ask the FTC to review whether ``consumers are being unfairly squeezed'' considering the record profits posted by energy companies in the first quarter.
Voter Concern
Mark Cooper, director of research for the Consumer Federation of America, says the FTC must fine-tune its analysis of market power in the energy industry to reflect the fact that supply and demand do not respond quickly to prices.
``If the number of people in the market is small enough, they don't have to collude to extract nearly all the profits a monopolist would,'' Cooper said in an interview.
Higher prices may threaten the stability of the economic recovery, as government data released last week showed inflation rising and purchases of cars and clothing dropping. About 41 percent of Americans say the national economy is getting worse, up from 29 percent in April, according to a poll of 1,100 adults conducted by the American Research Group May 3-6. About three- fourths attribute the decline to rising gasoline prices.
World oil demand is rising at its fastest rate since 1988, outpacing supply, as economic growth accelerates and consumption surges in China, the International Energy Agency said last week. The U.S. Energy Department raised its estimate for how much Americans can expect to pay for gas next month by 19 cents to an average peak of $2.03 a gallon.
Still Driving
So far there's no evidence that high gas prices are pushing motorists out of their cars. U.S. gasoline inventories fell 1.5 million barrels to 202.5 million in the week ended May 7, the Department of Energy said. Analysts surveyed by Bloomberg expected an increase of 1.5 million barrels.
``You would think that the American consumers would start to cry uncle, but they aren't,'' said Phil Flynn, senior energy trader for Alaron Trading Corp. in Chicago.
U.S. Commerce Secretary Donald Evans told reporters last month he isn't worried that higher gasoline prices will hurt economic growth.
Gasoline prices ``have to get well above current levels to think we would see a substantive and mature impact on the economy,'' General Motors Corp.'s chief sales analyst, Paul Ballew, told analysts on a conference call earlier this month.
Monitoring the oil industry needs to include consideration of ``all the underlying factors'' that may cause prices to shift and change a company's behavior, said Diana Moss, who oversaw utility mergers at the Federal Energy Regulatory Commission from 1995 to 2001. The president should ensure regulators such as the FTC review all the consequences of proposed mergers, said Moss, who is now vice president of the American Antitrust Institute.
``A new policy or a tuned-up policy may be in order here,'' Moss said.
May 17 (Bloomberg) -- President George W. Bush allowed an increase in oil refinery mergers to go unchecked since he took office and may have contributed to the highest gasoline prices in 20 years as the November election approaches.
The Bush administration approved 33 takeovers totaling $19.5 billion, on top of 21 deals worth $7.3 billion under President Bill Clinton, Bloomberg data shows. Reduced supplies were already pushing up gas prices in Clinton's term, according to a Federal Trade Commission study conducted after pump prices rose to more than $2 a gallon in Milwaukee and Chicago in 2000.
``We're in a much worse position than we were when the federal government broke up the Rockefeller oil companies of the early 1900s,'' Jon Meade Huntsman, a registered Republican and founder of Salt Lake City-based Huntsman Co., the largest privately held chemicals maker, said in an interview. ``The average guy on the street is getting killed because this administration does not care.''
Americans are paying 30 percent more for regular gasoline than a year ago, an average of a $1.94 a gallon, and a poll by American Research Group May 3-6 showed voters becoming concerned. Oil futures have averaged $28.62 a barrel since Bush took office, 42 percent higher than the average during Clinton's two terms. Oil reached a record $41.38 a barrel on Friday.
Energy Bill
Bush, 57, who owned a Texas oil company, Arbusto Energy, before getting into politics, and Vice President Dick Cheney, 63, former chairman of Halliburton Co., the world's biggest oilfield services company, chose to focus on broadening access to federal land for oil exploration and developing renewable energy sources such as corn-based ethanol to minimize price volatility. The administration's proposed energy bill remains stalled in Congress.
Democratic presidential candidate John Kerry, 60, a four- term Massachusetts senator, has called on Bush to ``come up with a real plan'' to lower gas prices that considers more options such as cutting back on oil going into the U.S. Strategic Petroleum Reserve. Bush has rejected a reduction in the oil reserves.
``With gas prices expected to go over $2 a gallon next month, the White House needs to do more than just pay lip service to a problem that is threatening to exacerbate the weak economy,'' Kerry campaign spokesman Phil Singer said.
Refiners Benefit
Under Bush, the FTC hasn't tried to block any proposed refinery takeovers. During Clinton's eight years in office, the government sued once to block an oil industry merger. In February 2000, the FTC sought to stop BP Plc's $33.1 billion purchase of Atlantic Richfield Co. after concluding the combination could lead to higher prices of oil pumped from Alaska. BP completed the purchase in April 2000 after agreeing to sell oil fields in Alaska and terminals and pipelines in Oklahoma.
The rise in gasoline prices helped refiners generate the highest margins from refining crude oil into gasoline and other fuels in the first quarter since at least 1990. ConocoPhillips, the largest U.S. oil refiner, last month posted its biggest quarterly profit since the 2002 acquisition that formed the company. ChevronTexaco Corp., the second-biggest U.S. oil producer, said earnings rose 33 percent to the highest level since a 2001 merger formed the company. Chevron's first-quarter refining profit doubled.
Exxon Mobil Corp., the second-largest U.S. refiner, on April 29 reported its highest first-quarter refining earnings in 13 years. Valero Energy Corp., the No. 3 U.S. refiner, said on April 28 that profit will almost triple in the current quarter after increased demand for gasoline spurred a 46 percent earnings gain in this year's first three months.
Chicago and Milwaukee
The FTC investigated soaring gas prices in Chicago and Milwaukee in the spring of 2000, concluding that three companies contributed to the increase by cutting production 23 percent for summer gasoline blends required by the Environmental Protection Agency to control pollution.
The March 2001 report, two months after Bush took office, said the companies produced only enough to supply their own gas stations. The cuts weren't illegal because the companies acted independently of each other, according to the report prepared under Clinton's FTC chairman, Robert Pitofsky.
``Continuing to approve mergers within the domestic refining industry was counterproductive in light of the very high prices consumers were paying,'' said Tyson Slocum, energy policy research director for watchdog group Public Citizen.
Concentration
From 1993 to 2003, the market share of the five-biggest U.S. refiners grew from 35 percent to 52 percent, according to Public Citizen. For the top 10 refiners, market share rose from 56 percent to 79 percent. The Consumer Federation of America says 77 percent of the market on the East Coast and 67 percent on the West Coast were controlled by the top four refiners as of 2000.
``Any time you have a Republican administration there's going to be more reception to these larger corporate deals,'' Bill Andrews, who helps manage $3 billion at CS McKee & Co., said in an interview. ``The change of administration had an impact.''
Senator Carl Levin, 69, a Michigan Democrat and ranking Democrat on the Permanent Subcommittee on Investigations, said in 2002 that the FTC ``needs to be more cautious about approving mergers.'' Congress should consider requiring oil companies to hold set levels of gasoline inventories, Levin said.
Regional Rules
The FTC reviews regional concentration when considering refinery mergers, said general counsel William Kovacic.
``It may be possible in selected markets for individual firms to unilaterally increase prices, particularly where there are specific supply disruptions, but the capacity to do that is a separate question from the question did the mergers make it easier,'' Kovacic said. ``We think, and again it's a fair point for debate, the mergers haven't contributed to this.''
Kovacic said regional fuel requirements that prevent some types of gasoline from being sold in different markets may be more to blame for crimping supply. Different states have their own requirements for additives such as ethanol used to meet federal pollution rules. California, for example, won't allow the use of gas blended with an ethanol alternative, methyl tertiary butyl ether, or MTBE, because of concerns the petroleum-based chemical will foul water supplies.
``We have suggested in our comments to other agencies that it would be helpful if there were a more integrated approach to competition policy,'' Kovacic said.
`Crazy Quilt'
California and New York have requested waivers from Clean Air Act requirements to help lower gas prices. Guy Caruso, head of the Energy Department's statistical arm, said waivers would do little to lower gas prices this summer because refiners have already decided what gasoline blends they will produce. Different fuel blends can't be mixed without violating separate federal regulations.
``This whole crazy quilt patchwork system of environmental regulation'' needs to be addressed, CS McKee's Andrews said. ``I don't think there's anything they can do'' between now and the Nov. 2 presidential election, he said.
Federal Clean Air Act rules add from 4 cents to 8 cents a gallon to the price of gasoline, the Environmental Protection Agency estimates. In 2001, the EPA opened an inquiry into how special gasoline blending requirements should be addressed. Only Congress can change the Clean Air Act requirements, said John Millett, an EPA spokesman.
``It takes tremendous capital expenditures just to maintain a position in the industry due to the onslaught of environmental, mostly clean air, regulations,'' said Charles Drevna, a spokesman for the National Petrochemical & Refiners Association in Washington.
Market Power
Retail gasoline prices in California should be linked more closely to the price of oil than they are, said Justine Hastings, an assistant economic professor at Yale University. The correlation is also weak in Arizona and Illinois.
``In these areas where the markets don't seem to be as competitive, there's evidence that firms are able to exercise market power due to the fewer number of competitors in refining and retailing,'' Hastings said. Sound like the electricity marketplace a few years ago?
Crude oil prices account for almost half of the cost of gasoline, the Energy Department says. Refining, distribution and marketing costs make up one fourth of the price and taxes account for the rest.
Oil futures rose 30 cents, or 0.7 percent, to settle at $41.38 a barrel in New York Friday. Oil prices are up 27 percent this year partly on concern that terrorists may try to cripple exports from the Middle East, where about a third of world supply is pumped.
Missing the Point
Kerry and other Democratic lawmakers including Senators Charles Schumer, 53, of New York and Jeff Bingaman, 60, of New Mexico have called on Bush to suspend oil deliveries into the nation's Strategic Petroleum Reserve until prices drop.
The debate in the presidential campaign over crude oil supplies misses the point, ConocoPhillips Chief Executive James Mulva, 57, said at a meeting with reporters this month. ``There is plenty of oil on world markets. It's a question of limited refining capacity.''
Between 1977 and 2002, the number of U.S. refineries dropped to 153 from 282. Refining capacity over that period has increased 2.4 percent to 16.8 million barrels a day from 16.4 million barrels a day, according to the Energy Department. U.S. demand for gasoline has grown 27 percent in that period.
ConocoPhillips, which produces a sixth of the nation's gasoline, said its plants are operating at 97 percent of capacity. No new refineries have been built in the U.S. since 1976 because of the difficulty in getting approval to build plants and the cost of construction, said Drevna of the National Petrochemical & Refiners Association.
European gasoline prices are at their highest recorded levels due to demand from the U.S. Monday's prices closed at $462 a metric ton, matching record prices reached earlier in the month. The average price of wholesale European gasoline in 2003 was $293.57 a metric ton.
`Isolated Markets'
``We are getting more isolated markets,'' Richard Gilbert, who chairs the economics department at the University of California at Berkley, said in an interview. ``We do not have a coherent energy policy.'' Gee...and we have oil men running the government...could this be accidental?
Dan Tulis, who manages $20 million at Elco Management Co. including shares of ChevronTexaco and BP Plc, said mergers shouldn't be blamed for higher gas prices. Demand from Asia has boosted the price of crude oil, he said. Many refineries may have been saved from closing because of the mergers, he said.
``If they didn't put them together and they closed the refineries down, it would be worse,'' Tulis said.
The increase in different fuel blends is making production less flexible and the Bush administration should work with state governments and companies to reduce the number of fuel types, Senator Robert Byrd wrote in a May 14 letter to Bush.
Byrd, 86, a Democrat from West Virginia, also called on Bush to ask the FTC to review whether ``consumers are being unfairly squeezed'' considering the record profits posted by energy companies in the first quarter.
Voter Concern
Mark Cooper, director of research for the Consumer Federation of America, says the FTC must fine-tune its analysis of market power in the energy industry to reflect the fact that supply and demand do not respond quickly to prices.
``If the number of people in the market is small enough, they don't have to collude to extract nearly all the profits a monopolist would,'' Cooper said in an interview.
Higher prices may threaten the stability of the economic recovery, as government data released last week showed inflation rising and purchases of cars and clothing dropping. About 41 percent of Americans say the national economy is getting worse, up from 29 percent in April, according to a poll of 1,100 adults conducted by the American Research Group May 3-6. About three- fourths attribute the decline to rising gasoline prices.
World oil demand is rising at its fastest rate since 1988, outpacing supply, as economic growth accelerates and consumption surges in China, the International Energy Agency said last week. The U.S. Energy Department raised its estimate for how much Americans can expect to pay for gas next month by 19 cents to an average peak of $2.03 a gallon.
Still Driving
So far there's no evidence that high gas prices are pushing motorists out of their cars. U.S. gasoline inventories fell 1.5 million barrels to 202.5 million in the week ended May 7, the Department of Energy said. Analysts surveyed by Bloomberg expected an increase of 1.5 million barrels.
``You would think that the American consumers would start to cry uncle, but they aren't,'' said Phil Flynn, senior energy trader for Alaron Trading Corp. in Chicago.
U.S. Commerce Secretary Donald Evans told reporters last month he isn't worried that higher gasoline prices will hurt economic growth.
Gasoline prices ``have to get well above current levels to think we would see a substantive and mature impact on the economy,'' General Motors Corp.'s chief sales analyst, Paul Ballew, told analysts on a conference call earlier this month.
Monitoring the oil industry needs to include consideration of ``all the underlying factors'' that may cause prices to shift and change a company's behavior, said Diana Moss, who oversaw utility mergers at the Federal Energy Regulatory Commission from 1995 to 2001. The president should ensure regulators such as the FTC review all the consequences of proposed mergers, said Moss, who is now vice president of the American Antitrust Institute.
``A new policy or a tuned-up policy may be in order here,'' Moss said.