Senate report blames high gasoline costs on mergers

WASHINGTON, April 29 Reuters reported that a frenzy of oil company mergers has led to rising U.S. gasoline costs, and motorists should expect higher pump prices if the industry grows more concentrated, a U.S. congressional report said on Monday.

The Senate's Permanent Subcommittee on Investigations, after a 10-month review of gasoline prices, alleged that Marathon Ashland Petroleum deliberately withheld supplies in early 2000 to keep fuel prices high. Several other big oil firms failed to have adequate gasoline supplies on hand to meet demand, it said.

Sen. Carl Levin, a Michigan Democrat who chairs the subcommittee, said the report found that major oil companies took actions "to keep supplies tight and inventories low in order to increase prices and maximize profits."

Levin will on Tuesday hold the first of two days of hearings on why gasoline prices have become so volatile.

Senior company officials from BP (BP.L), Exxon Mobil , Marathon Ashland Petroleum , ChevronTexaco and Royal Dutch/Shell Group's (RD.AS) U.S. unit Shell Oil were scheduled to testify.

Marathon spokesman Chuck Rice denied the company withheld supplies from the market in the spring of 2000. Marathon produced 33 percent more gasoline at that time compared to the previous year "and sold every single drop of it," he said.

MERGERS BLAMED FOR HIGH PRICES

The Senate subcommittee's Democratic staff found that the oil industry mergers of the last few years and the closing of many refineries over the last 20 years reduced the number of gasoline suppliers, which led to higher fuel prices.

"If concentration in the oil industry continues to increase, higher prices can be expected," the report said.

The subcommittee report said the growing number of "vertically-integrated" energy companies that find oil, refine the crude into gasoline and then sell the fuel under their own brands has led to "anti-competitive" results, including higher wholesale and retail gasoline prices.

The panel said motor fuel prices have become more volatile than ever. "Gasoline prices now regularly vary more in one month than they previously did in entire years," the report said.

This spring, U.S. retail gasoline prices increased faster than at any other time in the past 50 years.

The Senate panel said last year's gasoline price increases helped push the U.S. economy into a recession. "This year's increases are threatening the current recovery," the report said.

The subcommittee looked at the effects of the large number of mergers and acquisitions in the oil industry, including:

* Marathon and Ashland Oil merger of refining operations (1998)

* British Petroleum merger with Amoco (1998)

* Exxon Corp. merger with Mobil Corp (1999)

* BP/Amoco acquisition of Atlantic Richfield (ARCO) (2000)

* Chevron merger with Texaco (2001)

* Phillips Petroleum acquisition of Tosco Corp refineries (2001)

* Phillips announcement of a merger with Conoco (2001)

The panel said the wave of mergers followed a consolidation of assets within the U.S. refining industry in the last two decades. In 1981, 189 firms owned 324 refineries, but by 2001 only 65 firms owned 155 refineries.

"During this period the market share of the ten largest refiners increased from 55 percent to 62 percent," the report said.

The American Petroleum Institute said that numerous federal and state investigations over the last three decades into gasoline prices have found no evidence of collusion or anti-competitive behavior in the oil industry.

"Fuel prices are driven by market forces. Because crude oil is the largest non-tax cost component of a gallon of gasoline, the price of gasoline is determined largely by the demand and supply of crude oil worldwide," API said.

"Gasoline prices are also affected by refinery and pipeline interruptions and by constraints that numerous specialized fuels across the country place on refineries and pipelines," the trade group said.