-Caveat Lector-
Report questions oil companies' claims of shortages
By the Associated Press
CHICAGO (October 8, 2000 12:04 a.m. EDT http://www.nandotimes.com) -
Five major oil companies told federal regulators in May that they had
adequate supplies to meet the Midwest's needs for a new gasoline
required by clean-air laws, according to a published report. A few weeks
later, prices jumped to $2 per gallon and the same companies blamed low
supplies of the new gas.
Four of the eight major companies that supply gasoline to the Chicago and
Milwaukee areas wrote to the Environmental Protection Agency in May that
they had adequate and increasing supplies of the new reformulated gas,
the Chicago Tribune reported in its Sunday editions.
Another company reported orally that it also had enough, and a sixth
company told the newspaper it also had plenty of the new fuel when the
summer started.
The letters seem to cast doubt on the oil industry's claim that the rapid rise
in prices in June was a simple case of supply and demand.
"We couldn't reconcile the degree of price rise with the physical facts on
the ground as we knew them," said Bob Perciasepe, assistant
administrator of the EPA's Office of Air and Radiation, which monitors the
use of the reformulated gasoline, called RFG.
The letters from the oil companies were written to protest requests by
gasoline marketers to waive the requirement for the reformulated gas.
Such a waiver, which the EPA rejected, would have been costly for the oil
companies because they already had shipped millions of gallons of the
new fuel.
"We have secured necessary supplies to satisfy our historical market
demand in this area," P.D. Bairrington, vice president of marketing at
Phillips Petroleum Co., wrote on May 25, according to the Tribune.
"We're happy to report that Koch Petroleum is supplying up to 20,000
barrels per day to Milwaukee, nearly double our 1999 production," wrote
Koch's northern region vice president, Brad Razook.
"Supplies of RFG for this market are tight, but appear to be manageable,"
J. Stephen Simon, president of ExxonMobil Refining and Supply Co., wrote
on May 25.
The Tribune reported that Premcor Inc. also wrote a letter to the EPA, and
that BP told the EPA that supplies were adequate. Citgo said the company
"made what we had expected in terms of (RFG) production," the
newspaper reported.
The Federal Trade Commission has been investigating the dramatic
increase in pump prices for months. An interim report in July said it "seems
unlikely" that stricter federal clean-air rules were what sent Midwestern gas
prices soaring, as some Republicans in Congress had insisted.
GOP leaders had blamed EPA rules requiring cleaner reformulated gas be
sold in the nation's smoggiest cities starting this summer. They said the
costly complications of making the new blend, especially in Chicago and
Milwaukee, where corn-based ethanol is added to make the gas burn
cleaner, were exacerbated when the Clinton administration refused to give
refiners flexibility in meeting the new standards.
The wholesale price of reformulated gas began to climb in early May,
especially the price paid by stations that buy fuel on the wholesale daily
market. That set off a scramble that pushed the price even higher.
Citgo spokesman Kent Young said his company had enough RFG to
supply its 340 Chicago-area stations, but didn't have the usual amount it
sells to independent stations.
"The industry as a whole was having a hard time getting reformulated gas
into Midwest markets," said Phillips Petroleum spokesman Rich Johnson,
The price jump may have caused some political heat and bad publicity for
oil companies, but it didn't hurt their bottom line. Second-quarter earnings
for all major oil companies were sharply higher, and many earnings
statements said increased profit margins in the refining and sale of
gasoline contributed to those higher earnings.
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