FTC defends decision to ignore upstream in price gouging report

Washington (Platts)--23May2006

US Federal Trade Commission Chairwoman Deborah Platt Majoras Tuesday
defended the antitrust agency's decision to largely ignore the upstream
exploration and production sector in its recent investigation into gasoline
price gouging following last year's hurricanes Katrina and Rita.

The FTC's report, released Monday, found no evidence of market
manipulation and only a handful of cases of suspected price gouging, all of
which could be explained by market forces, in the wake of the massive
hurricanes which disrupted Gulf of Mexico production and Gulf refinery
operations.

Majoras, testifying before the Senate Commerce Committee, said the FTC
opted to "look at the refinery level down" because the US Congress wanted a
probe into market manipulation and price gouging. "The crude oil production
side is highly unconcentrated," Majoras said, noting that the
Herfindahl-Hirschman Index, a commonly accepted measure of market
concentration for the upstream market "is in the 100s." She said that major US
oil companies hold a very small percentage of overall world crude oil
reverses, and that OPEC and major foreign government-owned companies have a
far greater control of the market.

Majoras was responding to questions by Senator Byron Dorgan, a North
Dakota Democrat, who blasted the FTC's report for ignoring the upstream
sector. "I'm very disappointed with this report. This is an agency that has
lost its teeth," Dorgan told Majoras.

Dorgan contended that the FTC had a responsibility to look at exploration
and production since crude oil prices are responsible for the bulk of gasoline
prices. "The FTC totally missed the upstream," he said. Dorgan blamed major
oil companies, OPEC, and the futures market, which he described as "an orgy of
speculation," for the sharp rise of gasoline prices following the hurricanes.

--Cathy Landry, cathy_landry@platts.com

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