denfoote and perception:
I assumed the links would work. Seemingly a big mistake. Text of articles below.
Mondo Washington
Crude Manipulation
In Katrina's wake, the supposed oil shortage and suspicious gas price hikes
by James Ridgeway
September 13th, 2005 11:25 AM
Supposedly gas prices are going through the roof because of an oil shortage. The hurricane made things worse. But it looks increasingly as though this is an out-and-out scam. The industry is awash with crude oil. However, it has reduced refinery output because selling refined products has been a money loser. Now, reports are suggesting the big companies worked together to slow refining capacity, and even tried to take independent refiners off the market, in their gambit to run up prices.
The Foundation for Taxpayer and Consumer Rights, a California consumer group dealing with utility and energy issues, has released a series of internal oil company memos that strongly suggest the industry conspired to withhold refined products to drive the price up. In the past the industry often blamed reduced refining on environmental regs that forced the companies to take refineries out of production. Memos from Mobil, Chevron, and Texaco in the 1990s (the firms subsequently merged) demonstrate the different ways the companies closed down refining capacity and drove independents out of the market. And according to the foundation, they were helped along by the American Petroleum Institute, the industry trade group. In one 1996 memo, Mobil suggested preventing a smaller refinery from flooding the market by "buying all their avails and marketing it ourselves." An internal Texaco memo indicated that the industry thought "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)"
The government currently is pushing refiners to increase production wherever possible because of the hurricane, even at risk of disregarding pollution standards, according to a report last week in the Financial Times. In addition, a refiner in Houston tells the Financial Times, the government is telling refiners to forget about doing maintenance: "Run the refinery as high as you can and avoid all non-priority maintenance in the next four to six weeks".
Mondo Washington
Pumping Us Dry
Katrina tragedy is an absolutely perfect storm for oil companies
by James Ridgeway
September 2nd, 2005 9:06 PM
The very first thing George W. Bush did in response to Hurricane Katrina was to offer a helping hand—not to the people stranded on rooftops in New Orleans, but to his friends in the oil industry. These were the same people who gave him $52 million in his last campaign. The president released millions of barrels of oil from the Strategic Petroleum Reserve so the oil companies would have enough fuel to make gas and keep the country going. But the companies don't need this oil. They're already swimming in it.
Pouring more oil into the marketplace didn't reduce gasoline prices, which kept on going up, hitting $4 a gallon in some places.
While crude oil production doubtless was curtailed by the storm, the companies face a surplus, not a shortage, of crude oil. So why dump more on the market?
“Despite growing inventories, U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) increased by nearly 5 million barrels over the past 3 weeks,” wrote the federal Energy Information Administration. Continuing in the clipped industry jargon, the agency added, “While this may not appear to be a substantial build, it comes at a time when crude oil inventories typically decline, as refiners use more crude to make gasoline needed for current demand and heating oil as they stock up for the winter.”
Thus, any crude oil inventory increase during the month of August, much less one of five million barrels over a three-week period, might lead one to expect prices to drop. Yet the price for West Texas Intermediate (WTI) crude oil has risen by $5 per barrel! If prices don't fall under these conditions, what will make them fall?
All over the world this summer, oilmen raced to dump surplus into the U.S. market, where the rigged prices made them a killing. Oil traders in China, the second biggest world market next to the U.S., were shoving oil into the high-priced U.S. market to make more money. (The U.S. consumes 25 percent of the world market; China 7 percent.)
Fort Worth Star-Telegram columnist Ed Wallace wrote last week that “there's actually weakening demand in Asia over the past two months, so oil is being diverted to the U.S., where it'll bring higher profits.” He quoted Reuters as noting that “Chinese oil trader Unipec resold at least 3 million barrels of August-arriving crude due to reduced refinery demand and was offering more, traders said last week.” Mary Rose Brown, a spokeswoman for Valero in San Antonio, was quoted by The Wall Street Journal as saying, “There is no reason for crude oil to be at $65 a barrel other than hype in the market.”
To be sure, some oil companies face shortages because of the storm, but the release of oil from the strategic reserve may not help them much. “The Capline, a major crude oil pipeline that feeds many Midwest refineries with crude oil from the Gulf of Mexico, is currently shut down due to lack of electricity at many of its pumping stations,” the EIA reported Wednesday. “As a result, one refinery in the Midwest has already reported that it has reduced its production due to a loss in crude oil supply. With the recent Government decision that crude oil from the Strategic Petroleum Reserve (SPR) will be made available to those affected by the hurricane, there may be some relief for refiners that have reduced their production due to loss of crude supply,” the government service dryly continues. “However, they will need to find a way to get the crude oil from the SPR to their refineries.”
What is going on here? The story goes like this: Refineries are increasing their stocks of crude, yet not increasing production of gasoline. This may help explain the high prices. It is an odd situation, since usually, in the summer, refineries are operating full tilt to lay in supplies of gasoline and home heating oil.
The slowing of gasoline production might be due to some unrecognized problems within the refineries. But the industry says it's because of market conditions, with officials noting that while today's crude prices are over $70, in 1999 crude oil was selling at around $12 a barrel. “Refineries lost a lot of money. In fact they lost money for most of the 1990s,” Jeff Morris, president of Alon USA, owner of the Big Spring Refinery, told The Wall Street Journal last week. “People chose not to spend on refineries. So what's affecting us now is that we're behind the investment curve and it will take us five to 10 years to catch up.”
If the companies can't increase their refined products, they could end up turning not to the petroleum reserve but to the European Union. While the U.S. keeps a supply of crude oil in its strategic reserve, the Europeans maintain a stock of gasoline as well as crude. There has been speculation that in a really tight situation, the EU might be called on to export some of that supply to the U.S.
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