Senators Say Oil Executives' Memos Indicate Collusion


By Kenneth Bredemeier

Washington Post
May 1, 2002

Big Oil was on the congressional griddle yesterday with no shortage of senators seeking to question major oil company executives about allegedly anti-consumer positions expressed in corporate memos from years ago and about the recent increase in gas prices.

The five executives uniformly rejected suggestions by members of the Senate's Permanent Subcommittee on Investigations that the industry manipulates gas supplies or refining production to prop up gas prices.

Moreover, the officials spurned the subcommittee's contention in a report that oil company mergers in the past few years have led to rising prices at the gasoline pumps for consumers and widespread alternating price dips and increases.

"Consolidation does not contribute to price volatility," said James S. Carter, regional director of ExxonMobil Fuels Marketing Co. of Fairfax, voicing a position echoed by the other executives.

Sen. Carl M. Levin (D-Mich.), the subcommittee's chairman, and other senators suggested through their questions that the oil companies have regularly sought to manipulate prices, and they expressed skepticism at the executives' denials.

Levin cited a 1999 internal memo from BP Amoco PLC that said "there are significant opportunities to influence the crude supply/demand balance," two of which were to "offer supply agreements [with other major oil companies] in exchange for [refining] capacity shutdown" and to "move product into southern Ontario." But Ross Pillari, BP's group vice president for U.S. marketing in Warrenville, Ill., told the panel that "all these suggestions were rejected."

Not satisfied, Levin asked, "Would you agree these proposals are outrageous?"

"Yes, I would," Pillari said. "People were counseled on the inappropriateness of these suggestions."

In a confidential 1998 memo discovered by subcommittee investigators during their 10-month probe of gas pricing in the United States, a Marathon Oil Co. "Short-Term Price Outlook" said: "As OPEC and other exporters' efforts to rein in output began bearing fruit, Nature stepped in to lend the oil producers a helping hand in the form of Hurricane Georges, which caused some major refinery closures, threatened off-shore oil production and imports, and generally lent some bullishness to the oil futures market."

"This is an amazing document," Levin said about the reference to the hurricane that killed hundreds of people in Haiti and the Dominican Republic in September 1998. He asked Gary R. Heminger, president of Marathon Ashland Petroleum LLC, "What do you say about that?"

"I apologize that my company would take pleasure in a hurricane," Heminger quickly replied. "We would not want anything to happen to anyone."

Other senators zeroed in on gasoline market conditions, which have boosted the national average price of a gallon of unleaded gasoline to $1.39, up 28 cents a gallon since early January. Sen. Susan Collins (R-Maine) wanted to know why, since reformulated gas is mandated by federal law in many communities during the summer to control air pollution, oil companies couldn't plan better to have enough such gas stored ahead of time. But David C. Reeves, president of North American products for Chevron Texaco Corp. in San Ramon, Calif., said that would be difficult. Sen. Jim Bunning (R-Ky.) told the executives that "nothing lights up my office [telephones] as when we see a 10- or 20-cent increase in prices" and "nothing infuriates the consumer more" than to see such sharply different prices in one metropolitan area.

But the executives defended their zone pricing system, which helps set different prices depending on neighborhood conditions, and the fact that prices at stations tend to rise and fall in tandem. "The fact that gas prices go up and down together -- doesn't that trouble you?" Levin asked Rob Routs, president and chief executive of Shell Oil Products U.S. of Houston.

"No, it doesn't trouble me," Routs replied.

But Levin suggested that such pricing, while legal, ought to be considered "an anti-competitive act" and that juries should be allowed to consider whether that is an antitrust violation.

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