Summer 2003 High Gas Prices -Not Rigged By Companies

WASHINGTON, Dec 2, 2003 Tom Doggett writing for Reuters reported that record-high U.S. gasoline prices during the last week of August were not caused by oil companies' market manipulation, but instead reflected a normal response to tight fuel supplies and strong consumer demand, the U.S. government said on Tuesday.

An investigation by the Energy Department's Energy Information Administration found the gasoline price spike was due to a combination of below-normal motor fuel inventories and an unusual late-summer surge in demand.

The agency also warned that future price spikes are possible because of lingering tight U.S. fuel supplies.

U.S. Energy Secretary Spencer Abraham asked for the investigation in early September after the national price for gasoline jumped 12 cents in just one week to a record $1.75 per gallon heading into the late summer Labor Day holiday weekend.

"The nature of this (price) fluctuation struck me as being unusually large as well and in need of greater explanation," Abraham told a congressional committee at the time.

Several Democratic lawmakers accused oil companies of deliberately withholding gasoline supplies to drive up prices.

Gasoline demand usually peaks in July. However, demand in August increased 200,000 barrels per day (bpd), or 2 percent higher from the month before, to a record 9.4 million bpd, the EIA said in its 66-page report on the price spike.

A massive electricity blackout on Aug. 14 that hit parts of the United States and Canada also cut gasoline production at three refineries by a total 65,000 bpd, making supplies even tighter, the agency said.

"Due to low inventory levels and little excess gasoline production capacity during the summer high-demand season, gasoline markets during summer 2003 had little cushion to meet unexpected market changes," the EIA said.

Because gasoline supplies remain tight and demand is strong, the U.S. market has a "continuing vulnerability" to price spikes, the agency said.

Tyson Slocum, with the Public Citizen consumer advocacy group, blamed the price spike on the huge oil company mergers of the past few years, which he said has reduced competition and removed the incentive for firms to hold adequate gasoline inventories.

However, John Felmy with the American Petroleum Institute, said the mergers have helped reduced operating costs for oil companies, which have been passed on to consumers.

He said larger gasoline inventories would increase storage expenses, which would be tacked on at the gasoline pump.

Since the late August peak, retail gasoline costs have steadily declined.

The national average price for regular unleaded gasoline fell 2.2 cents a gallon over the last week to $1.49, the lowest since July 7, based on the EIA's weekly survey of service stations. However, that price remains 13 cents higher from a year earlier.

Last Monday's pump price of $1.51 a gallon was the highest ever recorded by EIA going into the busy travel week of Thanksgiving.