FTC Finds No Collusion In Rising Gasoline Prices

By Justin Blum
Washington Post Staff Writer
Wednesday, July 6, 2005

Gasoline prices are increasing primarily because of market conditions, not collusion or other anti-competitive activities, according to a report released yesterday by the Federal Trade Commission.

The report said a variety of factors have pushed prices higher, including the rising cost of crude oil, increasing domestic and international demand and federal, state and local regulations. The findings included descriptions of investigations into specific price increases and their causes.

The report notes that some observers suspect that mergers, oil company collusion or other anti-competitive conduct may be the reason for higher gasoline prices. But it concludes: "The vast majority of the FTC's investigations have revealed market factors to be the primary drivers of both price increases and price spikes."

An FTC report released last August, which looked more broadly at competition in the petroleum industry, also found no evidence that oil company mergers had pushed up prices. The FTC's conclusions are at odds with those of the Government Accountability Office, which last year found that several mergers slightly increased retail gas prices.

Consumer advocates yesterday said the FTC report failed to recognize factors considered by the GAO. In a competitive industry, they said, companies would have added more refinery capacity, resulting in lower gasoline prices.

Sen. Ron Wyden (D-Ore.), who has been critical of the FTC's oversight of oil company mergers, said in a written statement that the FTC should examine why refining profits have risen. "Instead of blaming skyrocketing gasoline prices almost solely on higher crude oil prices, the FTC should be looking at why oil company refining margins have gone up even more than the price of crude oil," Wyden said.

FTC officials said they stood by their report.

A gallon of regular gasoline averaged $2.22 nationally yesterday, according to an AAA auto club survey -- up from $1.89 a gallon a year ago.

Crude oil prices, the biggest factor in gasoline prices, have surged as a result of increasing demand in China, India, the United States and elsewhere. Oil markets have remained tight, and the world's producers have struggled to keep up.

Yesterday, U.S. benchmark crude oil for August delivery closed at $59.59 a barrel on the New York Mercantile Exchange, up 84 cents.

The commission did not make recommendations on how to address rising gasoline prices. The report said its findings were designed to educate consumers and policymakers.

The FTC said that since 2002, its staff has monitored weekly average gasoline prices in 360 cities to detect "pricing anomalies" that could indicate "anti-competitive conduct."

The report detailed basic market factors pushing up gasoline prices.

When worldwide crude prices rise, it noted, refiners must offer and pay more for the oil they buy. "Facing higher input costs from crude, refiners charge more for the gasoline they sell at wholesale," the report said. "This requires gas stations to pay more for their gasoline. In turn, gas stations, facing higher input costs, charge consumers more at the pump."

Since 1973, decisions by the Organization of the Petroleum Exporting Countries about oil production have been "a very significant factor" in prices refiners pay for oil, the report noted. In recent months, the cartel has been producing close to capacity while in some previous years, its members withheld oil from the market to boost prices.

From 1988 to 2004, worldwide demand for crude oil increased 27 percent, the report said.

In the 1990s, the report said, oil prices were relatively stable, "suggesting that crude producers increased production to meet increased demand." But in 2004, the report said, oil producers were unprepared to pump enough to meet demand, which was higher than expected.

For most of the past two decades, after adjusting for inflation, annual average retail gasoline prices have been lower than at any time since 1919, the report said.

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