By Staff
An Associated Press analysis suggests that big oil companies indeed restrict supplies in subtle ways and have across the country for years, knowing those scarcities tend to increase prices.
The analysis, based on data from the U.S. Energy Information Administration, indicates that the industry slacked off supplying oil and gasoline during the prolonged price boom between 1999 and last summer, when prices finally subsided.
The oil industry denies manipulating supply, insisting it's been working hard to meet insatiable demand.
It faults output quotas set by Mideast oil powers, global competition for oil from surging economies such as China's and domestic challenges, from hurricanes to depleted wells and clean-air regulations.
But the AP analysis also found evidence of "at least an underwhelming industry performance" in supplying the domestic market at a time when profits should have made investment capital plentiful.
During the 1999-2006 price boom, the industry drilled an average of 7 percent fewer new wells monthly than in the seven preceding years of low, stable prices.
The national supply of unrefined oil, including imports, grew an average of only 6 percent during the high-priced years, down from 14 percent during the previous period.
The gasoline supply expanded by only 10 percent from 1999 to 2006, less than the 15 percent in the earlier span.
The industry exerts quite a bit of control over supply by deciding to invest in new wells and refineries – or not.
The long price run-up first took off as the number of new wells abruptly dropped 59 percent in 1998-99, federal records shows.
"Strategic underinvestment," a Consumer Federation of America research director calls it.
A 2001 study by the Federal Trade Commission reported that some firms decided to "maximize their profits" by crimping supply during a Midwestern gasoline price spike.
One executive told regulators he preferred to "sell less gasoline and earn a higher margin on each gallon sold."
This year, the FTC reported that some companies stored oil instead of selling it right away in anticipation of higher future prices.
The AP findings merely buttress a conclusion many motorists already reached on their own.
Fifty-five percent of Americans believe gas prices are high because oil companies manipulate them, a Pew Research Center poll found in October.