Higher gas prices aren't a conspiracy

By Thomas Bray / The Detroit News

Having just returned from a driving trip to the East Coast, it's easy to understand the anger and frustration of motorists contemplating $2 a gallon -- or more -- gasoline. Didn't this happen last summer, and why haven't they fixed the problem? But before you begin conjuring up conspiracy theories about the big bad oil companies, consider a couple of pesky facts. One is the figure 5 percent, about which more later. The other is the recently released report of the Federal Trade Commission (FTC) about last summer's price spike. When gasoline prices soared at the beginning of the summer driving season last year, particularly in the Midwest, panicky members of Congress demanded an FTC investigation into possible gouging and antitrust violations. The FTC, which by law is balanced between Republican and Democratic appointees, subpoenaed 13 American refiners, 10 pipeline companies and scores of employees. It pored over 1,000 boxes of information (and, reflecting our modern times, 100 compact disks). And after months of testimony and deliberations, it concluded: "There is no evidence that the price increases were a result of conspiracy or any other antitrust violation. Indeed, most of the causes were beyond the immediate control of the oil companies." The FTC report was approved unanimously. Orson Swindle, whom you may remember both for his suspicious name and the fact that he once served as Ross Perot's campaign manager, added a separate written opinion that "the bottom line is that the problems in the Midwest were caused not by antitrust violations but by a combination of the EPA (Environmental Protection Agency) and unforeseen market circumstances." Swindle was referring to federal mandates that gasoline in certain markets, particularly the industrial Midwest, be specially tailored to reduce pollution emissions almost to zero. OK, but why is it happening again? For one thing, demand is still rising despite the cooling of the economy. Plus refiners drew down sharply on their oil inventories to supply the home heating market during the unusually cold winter. As a result, production of gasoline had to be cut 1.7 percent. And because refineries were running flat out to insure that nobody froze to death, many had to be taken off line for maintenance this spring -- and several, including one in Illinois, have experienced fires that disrupted production. But down at the bottom of the problem is that 5 percent figure. It's the average rate of return on oil refineries in the United States. And it helps explain why there are only half as many refineries in the United States now as 20 years ago. Think of it this way. You can take your money down to the bank and open a saving account that returns 5 percent. There is almost zero risk in such an investment. Why would you sock your money into a new oil refinery that could burn down at a moment's

-- (calif.needs.to.get@clue.now), May 07, 2001

Answers

Along with half as many refineries, there are 50 different blends of summer gasoline due to EPA Clean Air Act. Detroit refineries do not produce the blend of gas used in Chicago, only 200 miles away.. The gas used in Chicago is different than the gas used in Atlanta is different than the gas used in Dallas is different than the gas used in Phoenix and so on. Take that into account along with all of a sudden, the trip downtown has suddenly become such an arduous journey as to require a 4 wheel drive SUV. How about some cheese to go along with the whine????

-- Rob (celtic64@mindspring.com), May 07, 2001.

Rob you're simply fucked up.

Would you kindly substantiate what you just claimed?

-- (Demanding @n. answer), May 07, 2001.

http://www.perrymanagement.com/crisis.html

Oil Crisis? How About the Refinery Crisis?

In addition to the constraints on the refining capacity, there are limitations to the refinery products distribution system--mostly pipelines. This system was designed to handle six to eight different products when it was built in the 1960-1970 era. Today, due to the many blends of gasoline required in various cities, the system now has to cope with three dozen different products. This multitude of products makes the system much more complex and reduces its capacity.

Because excess refining capacity is not always in the location where it is needed, it is essential that products can be moved from one area to another . Naturally, if there are constraints in the distribution system due to the multiple products that must be handled, then there are times when the distribution system cannot move the proper products to where they are needed. Thus there are spot areas with shortages.

The multitude of gasoline blends are being dictated by the U.S. Environmental Protection Agency in its quest for cleaner air. Non- attainment areas require "reformulated gasoline," commonly called RFG in the industry. However, different cities require different blends for RFG, depending on the pollutants prevalent in the air of that city.

-- (Many@different.blends), May 08, 2001.

Mr demanding an answer, the only thing fucked up is American attitudes! See the post "50 reasons gasoline isn't cheaper." Also, thanks to the poster who put in the article on many different blends. Answers are out there if you look for them!

-- Rob (celtic64@mindspring.com), May 08, 2001.

50 reasons gasoline isn't cheaper

-- (thread@to.thread), May 08, 2001.