Tuesday, May 24, 2011

Are oil refineries manipulating gas prices?

Oil Refinery

Gas prices are continuing their steady decline, although not at the rate many would expect. Now, some federal lawmakers are suggesting that refineries may partly be to blame.
Senator Charles Schumer

The average price per gallon of regular gasoline in the Syracuse area is $3.93 Monday, down about six cents from a week ago. Still, U.S. Senator Charles Schumer thinks it should be lower and is calling for refineries to be investigated for possible price manipulation.

Gas prices skyrocket when oil prices rise, but when oil prices fall the price at the pump declines only slightly. That sequence appears to be repeating itself once again, since oil has fallen below $100 per barrel.

Senator Schumer was in town to call on the Federal Trade Commission to investigate what part oil refineries might play in the disparity. He and other lawmakers believe refineries cut back on their stockpiles to keep supply down and the prices at the pump high.

"If they're all holding back deliberately to keep the price up and each one is sort of looking at the other and winking they can be held accountable," Senator Schumer said.

A report released by the Energy Information Administration shows refiners are producing at just 81 percent of capacity, a decrease of 900,000 barrels per day compared to last year.

"81 percent capacity at a time when the price is at a record high? There seems to be something really wrong," Schumer said.

Even as demand for gasoline drops, Schumer says another disturbing trend is emerging. "Refiners' profits are dramatically increasing and there's no good explanation according to the free market," he said.

The Senator believes big oil may be exploiting every single link in their supply chain to keep prices up. Residents of CNY don't seem to doubt that for a second.

"It seems like they're managing the price," Ed Robicheau said. "Especially on the way down."

"Most everybody thinks that's the case and nobody has been really able to prove it," said Tom Roehm. "It would be nice if Congress would do a little more oversight."

When asked if this call to action will in fact lead to an actual investigation, Schumer said he'll keep banging away at the FTC until it does. He adds that a few years ago when prices were at similar levels, he visited CNY to call for the release of the Strategic Petroleum Reserve three times. It eventually happened and prices then dropped 25 percent.

The New York State Attorney General is currently in the middle of a price gouging investigation in Central New York. His office says it should have the results in the next few weeks.

Strategic Petroleum Reserve
Is ittime to tap US oil reserve?

I’m sure that many Americans are unaware, as I was, that 727 million barrels of oil, bought and paid for with billions of American dollars, lie in more than 500 salt domes located along the Gulf of Mexico.
With crude oil prices hovering around $100 a barrel, this is a $70-plus billion U.S. asset that is bought and paid for. This is known as the Strategic Petroleum Reserve, and its creation was set into motion by President Gerald Ford when he signed the Energy Policy & Conservation Act on Dec. 2, 1975, as a result of the 1973-74 oil embargo.

Freeing up these reserves is an emergency response tool the president can use should the U.S. be “confronted with an economically threatening disruption in oil supplies.”

Perhaps that definition should be expanded by Congress to include the current state of conditions that has driven the cost of gasoline at the pump to around $4 per gallon, robbing Americans of a good chunk of their discretionary income. And for those who say those 727 million barrels of SPR are best saved for a rainy day, well, take a look outside — it’s raining like hell.

Use of the reserves is not unprecedented.

In an effort to ensure that the $22 billion investment ($5 billion in facilities, and $17 billion in crude purchases) would work in times of need, we have authorized, from time to time, test sales and “exchanges” (selling to acquire new or different types of crude oil, which has happened 10 times) to test the readiness of the reserve and its personnel to carry out a presidentially ordered drawdown.

These actual emergency releases have occurred only twice since the SPR inception.

The first was in 1991, at the direction of President George H.W. Bush at the beginning of Operation Desert Storm, to ensure an uninterrupted flow of oil during the confrontation.

The second was in September 2005, at the direction of President George W. Bush as a result of the devastation to oil production, distribution and refining caused by Hurricane Katrina.

Given that we may be waiting a long time for another Bush to become president, it is time for President Obama to send a signal that he is serious about solving this economically crippling issue, and release upward of 10 percent of the SPR.

This will require him to think outside the box, something we have only seen him do as it relates to spending taxpayer money thus far in his presidency.

In each case, where the U.S. government basically sold some of the SPR, there have been upward of 33 companies that responded to the Energy Department’s solicitations, so there should be no shortage of interested bidders.

The last purchase we made of crude oil for the SPR was in January 2009, when we spent $553 million on 10.7 million barrels of crude at $51.68 per barrel. It stands to reason that we would get more in May 2011 than what we paid in 2009, and 10 percent (72 million barrels) could pump some $40 billion back into the economy in some way, shape or form.

This action would signal to the oil companies and oil-producing “partners” — it seems like a one-way partnership much of the time — that we are serious about addressing this issue, and that the average American is tired of lining the pockets of oil magnates, and going broke in the process. Were this drastic step implemented, I believe we’d start to see immediate decreases at the pump as a result. 
U.S. Reps. Richard Neal

We should all call on U.S. Reps. Richard Neal, James P. McGovern and the rest of our Massachusetts delegation to pressure the president to think outside the box on this issue. As small business owners forced into our own austerity measures I, for one, am tired of seeing this delegation rubber- stamp every spending initiative President Obama has come up with, while at the same time offering nothing concrete to address the mounting debt and poor economic conditions.

U.S. Reps James P. McGovern

Yes, renewable energy sources, new domestic drilling options, energy conservation measures and the like should all be pursued with vigor. Perhaps one of the answers is lying in salt domes on our own soil.

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