Oil Companies Rig Gas Prices, Watchdog Says : Energy: They ran many small dealers out of business in the 1980s, forcing buyers to pay more, Citizen Action contends. The firms deny the allegations.
Major oil companies over the last decade have manipulated gasoline prices and forced many small dealers out of business, causing consumers to pay more at the pump and hurting the economy, according to a decade-long study released Sunday by a Washington, D.C., consumer group.
The study, prepared by oil industry watchdog Citizen Action, said major oil companies force consumers to pay 5 to 10 cents more per gallon in states such as California, where they own most of the gas stations.
To remedy what it calls unfair pricing, Citizen Action is asking Congress to investigate the industry’s pricing practices and to pass legislation that would promote competition among oil companies.
Industry officials, many of whom said they had not seen the full text of the 100-page report, responded by saying that the litany of charges does not accurately portray how they conduct business or set their prices.
A main contention of the study is that major oil companies do not lower the price at the pump when crude prices decline, but increase their gas prices during periods when crude prices jump--such as the outbreak of war in the Persian Gulf.
“Remember, a penny (a gallon increase in gas prices) represents more than $1 billion per year for companies, so companies do not have to raise prices that much” to reap big profits, said Ed Rothschild, director of Citizen Action and a frequent critic of major oil companies.
“You may not notice it if prices go up 1 cent. It’s death by one thousand cuts,” said Rothschild.
Oil companies have a history of expansion that involves, at least in part, predatory pricing techniques, the study said. They drive their gasoline prices so low that smaller, independent stations cannot compete, forcing them to leave the area or go out of business, the study said. Once they have a monopoly in a market, the large companies then raise prices, the study said.
The study said the nation’s top eight oil companies--Shell, Chevron, Texaco, Exxon, Mobil, Amoco, Sohio and Citgo--have increased their share of the retail gasoline market by more than 25% since 1982. In California, the study contends, Arco, Chevron, Shell and Unocal in 1990 controlled nearly 62% of retail gasoline sales.
The economy suffers as a result of such control by big oil producers, the report contends. Such actions mean that a precious raw material, crude oil, does not enter the economy in the most efficient manner. Crude is the key ingredient in gasoline production.
The study was released as two House subcommittees are scheduled to hear testimony today from a panel of oil experts on the state of competition in the industry. The panel will include Rothschild and Stu McDonald, Arco’s vice president of distribution, who called the charges in the Citizen Action study “baseless.”
“Just drive down the street and see the competition on the street,” he said, referring to differences, although slight, between gas prices. McDonald said oil companies are concerned about competitive pricing because “motorists will change stations for 1 cent.”
The average price of a gallon of unleaded gasoline in the Los Angeles area last week was $1.12, about 3 cents lower than the national average, according to Computer Petroleum Corp. of St. Paul, Minn.
The Citizen Action study flies in the face of a report released two weeks ago by the American Petroleum Institute, a promoter of oil industry interests in Washington, D.C. The institute said that, based on monthly and weekly data from January, 1982, until March, 1991, “gasoline prices consumers pay fall just as quickly after crude oil price drops as they rise after crude oil price increases.”
“Regarding independent marketers,” the institute said in a prepared statement Friday, “the record shows that group has grown at a rate far above the industry average.” In 1981, members of the Society of Independent Gasoline Marketers of America employed more than 65,000 people, the petroleum institute said. By 1990 it employed 179,000.
Chevron economist Tom Burns said of the Citizen Action study: “Throw it in the round file and forget it.” The study “bears little relation to the industry as it works in the United States,” he said. Depending on when prices are checked, it is possible to derive a different interpretation of how crude prices relate to pump prices.
Citizen Action’s study urged Congress to investigate pricing practices of major oil companies” and to “pass legislation that protects consumers and the economy by restoring and promoting competition.”
“Without decisive action, consumers will be faced with a handful of major oil companies in control of all major metropolitan gasoline markets, cooperating rather than competing with each other, charging excessive prices and reaping monopoly profits,” the study contended.
The average price of a barrel of crude will probably fluctuate between $21 and 22.50 the next few months, predicted Michael Doyle, the editor of Computer Petroleum Corp. Doyle said the biggest unknown is “the extent to which the Soviet Union exports crude oil and gas oil.”
In quiet trading, energy futures prices settled mostly higher Friday. The October contract for light, sweet crude, which expired at the end of trading, finished 21 cents higher at $21.97 per barrel on the New York Mercantile Exchange.
Big Oil Firms Boost Market Share During a decade of consolidation, the nation’s eight biggest oil companies increased their share of the total retail gasoline market by more than 25%.
Market share (in percent):
1982: 46.2
1984: 53.0
1986: 56.3
1988: 56.7
1990: 58.4 Note: Includes Shell, Chevron, Texaco, Exxon, Mobil, Amoco and Sohio for all years. Includes Arco for 1982--1986 and 1988, and Citgo in 1986, 1988 and 1990.
Source: Citizen Action, citing National Petroleum News.
