Short Supply, Not Oil Firms, Blamed for High Gas Prices

The sharp rise in gasoline prices that hit California and the rest of the country in August stemmed from short supplies, not market manipulation by the oil companies, according to a federal report released Tuesday.

In its 66-page report, the Energy Information Agency said the run-up had its roots in an oil industry strike in Venezuela and the war in Iraq. Those factors prompted U.S. refineries to draw down oil and gasoline inventories to unusually low levels, according to the report.

“Due to low inventory levels and little excess gasoline production capacity during the summer high-demand season, gasoline markets during summer 2003 had little cushion to meet unexpected market changes,” the report said.

In the Midwest and on the East Coast, the shortage was aggravated by the widespread power outage Aug. 14, which forced several refineries to shut down just as motorists stepped on the gas. The effect was magnified because of already low stockpiles, the Energy Information Agency said.

In California, the culprits included a smattering of refinery glitches and a pipeline break in Arizona, which forced California to divert supplies to the Phoenix area at a time when gasoline production was already running well short of demand.

Retail prices soared to an average of $2.101 for a gallon of self-serve regular gas in California, and to an average of $1.747 nationally, in advance of the Labor Day holiday. California prices jumped nearly 36 cents a gallon in the two-week period ended Aug. 25.

Responding to congressional and consumer outrage, U.S. Energy Secretary Spencer Abraham launched an investigation into the causes of the price rise.

“The nature of this fluctuation struck me as being unusually large

The study released Tuesday said the surge was an issue of supply and demand, not price gouging, because retail prices generally tracked with market conditions and followed increases in wholesale prices.

“As long as retail prices conform to the predicted pattern of pass-through [from wholesale to retail], it can be assumed that no significant gouging is occurring,” the Energy Information Agency said.

Charles Langley of the Utility Consumers’ Action Network acknowledged that the conditions the agency cited were legitimate factors in the August increases. However, he said there was a lack of competition in the California market that made it all too easy for shortages to trigger price increases.

“There’s no mention of the fact that we’ve got five companies controlling more than 90% of the state’s gasoline production,” said Langley, who studies gas prices for the San Diego-based consumer group. “The very real crisis [in Arizona] was magnified and enlarged by our so-called oil company competitors seeing a great opportunity to make a lot more money off of a bad situation.”

Gas prices have generally declined since summer, and now average $1.68 a gallon in California and $1.49 nationally, according to the latest Energy Information Agency survey released Monday.