No illegal oil market manipulation in post-Katrina prices: FTC

New York (Platts)--22May2006

The US Federal Trade Commission said Monday that it had found "no
instances of illegal market manipulation" of oil prices in the aftermath of
Hurricane Katrina last September, but that it did find 15 examples of price
gouging.

In a Congressionally mandated report, "Investigation of Gasoline Price
Manipulation and Post-Katrina Gasoline Price Increases," FTC said that while
there was no indication of outright market manipulation in the wake of the
devastating hurricane that blasted the US Gulf of Mexico and Gulf Coast area,
the agency identified "15 examples of pricing at the refining, wholesale, or
retail level that fit the relevant legislation's definition of evidence of
'price gouging.'"

FTC leavened that assessment by noting that, "Other factors such as
regional or local market trends, however, appeared to explain these firms'
prices in nearly all cases."

The agency also reiterated its position that any attempt at federal
gasoline price gouging legislation, "in addition to being difficult to
enforce, could cause more problems for consumers than it solves, and that
competitive market forces should be allowed to determine the price of gasoline
drivers pay at the pump."

As to any claims that the oil industry engaged in market manipulation to
jack up prices in the wake of a storm that seriously disrupted nearly all
segments of the supply chain, FTC's investigation exonerated the various oil
sectors.

For example, the report said the probe found "no evidence to suggest that
refiners manipulated prices through any means, including running their
refineries below full productive capacity to restrict supply, altering their
refinery output to produce less gasoline, or diverting gasoline from markets
in the United States to less lucrative foreign markets." It said the evidence
gathered in the investigation, "indicated that these firms produced as much
gasoline as they economically could, using computer models to determine their
most profitable slate of products."

The probe also dismissed suggestions that the sharp price run-up in the
aftermath of Katrina resulted in part from from expansion decisions -- either
unilaterally or in a coordinated effort -- by refiners over the past several
decades that signalled an effort to manipulate the market.

The FTC report also said the agency had found "No evidence to suggest
that petroleum pipeline companies made rate or expansion decisions in order to
manipulate gasoline prices," or that oil companies reduced their inventories
to increase or manipulate prices "or exacerbate the effects of price spikes
generally, or due to hurricane-related supply disruptions in particular."

It said that while inventory levels in the US have declined, the decline
"represents a decades-long trend to lower costs that is consistent with other
manufacturing industries."

The report also said that FTC found "no situations that might allow one
firm -- or a small collusive group -- to manipulate gasoline futures prices by
using storage assets to restrict gasoline movements into New York Harbor, the
key delivery point for gasoline futures contracts."

Regarding possible price gouging, the FTC said its staff analyzed
financial data for 30 refiners, 23 wholesalers, and 24 single-location
retailers. The report found that 15 of those companies -- seven refiners, two
wholesalers and six retailers -- had higher average gasoline prices in
September 2005 compared to August, and that "these higher prices were not
substantially attributable to either higher costs or to national or
international market trends. Accordingly, there was evidence of price gouging,
as defined by (federal law)... Additional analyses, however, showed that other
factors, such as regional or local market trends, appeared to explain the
pricing of these firms in nearly all cases."

--Robert DiNardo, robert_dinardo@platts.com

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