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AP Analysis: Firms Crimping Oil Supplies

Even in Bakersfield, which lives off oil, many suspect that the industry goes easy on supply for its own reasons. "They ain't trying: that's more money for them," snorted JaRayle Madden, a construction worker filling up his little sedan recently at a local Shell station.

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This fast-growing city of 300,000 shuddered in November 2003, when Shell confirmed it would soon close its local refinery. Plant workers, consumer activists and public officials rose up in resistance, firing off letters and demanding meetings.

The 70-year-old refinery only produced 2 percent of California's gasoline and 6 percent of its diesel fuel. Yet opponents feared its demise would push up prices in the tight markets all along the West Coast.

In these circumstances, surely the plant was worth something to someone, if not to Shell. After losing $57 million mostly in the aftermath of the Sept. 11 terrorist attacks, the refinery was making money again, Shell acknowledged.

Though set back temporarily by the attacks, the oil business has profited handsomely since then. For example, the biggest six refiners _ Shell is only No. 12 nationally but powerful in California _ rang up $400 billion in profits since 2001, according to the consumer group Public Citizen and corporate reports. Even compliance with complex clean-air rules hasn't spoiled business.

The industry also protected profits by not building any new refineries, instead expanding existing ones when it could.

Shell portrayed its Bakersfield refinery as old and unfit. One executive said there was "simply no longer an adequate supply of crude oil" nearby.

Drillers across the country complain of maturing wells that are slowly running low. Gas or liquid is sometimes injected into reservoirs at higher cost to keep up the flow.

"The industry is working very hard," says Joe Sparano, who heads the Western States Petroleum Association representing Shell and other drillers, refiners and marketers.

However, oil reserves are expected to last for decades around Bakersfield and elsewhere, according to industry and government estimates. Fresh national reserves are found each year. To make up for older wells, oil companies regularly drill new ones _ about 9,800 last year. Underground discoveries and technological strides have kept domestic reserves at the same level as in 1999.

With demand growing, though, the United States has imported an expanding share of its oil from abroad _ and quotas kept by Mideast nations do lift its price.


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© 2006 The Associated Press