Gas gouging alleged - AAA, public officials question gas price hikes to near record; petroleum industry defends increases.

money.cnn.com February 21, 2003: 2:50 PM EST By Chris Isidore, CNN/Money Senior Writer

NEW YORK (CNN/Money) - With gasoline prices rising across the nation to a near record high, cries of gouging are rising from consumer groups and public officials, although petroleum officials argue that pump prices are justified by the rise in crude oil prices.

Unleaded gas prices averaged $1.663 a gallon in a survey by the American Automobile Association, up 13 percent from $1.469 just a month ago, and up nearly 50 percent from a year earlier. The current prices are near the survey's record high of $1.718 reached in June 2001.

Even without the start of a war between the United States and Iraq, those prices were poised to go higher as an oil storage facility fire in Staten Island, N.Y., sent gasoline futures more than 2 percent higher on the New York Mercantile Exchange, even though the fire seemed to involve a propane barge, not a gasoline refinery.

The AAA said it is concerned that the prices are being driven by speculation about the threat of war or terrorism, not merely rise in costs.

"While it is true the continuing loss of oil and gasoline exports from Venezuela and recent cold weather in much of the country have affected fuel inventories, nothing fully justifies the dramatic increase in gasoline prices experienced across the United States in the last month," an AAA statement said.

High gas prices are igniting calls for an investigation into possible gas gouging. CNNfn's Lisa Leiter has more on the rising gas prices.

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Florida Attorney General Charlie Crist and U.S. Sen. Charles Schumer, D-N.Y., have asked the Federal Trade Commission to look into the recent rise in gasoline prices. But while FTC spokesman Mitchell Katz said the agency is monitoring the situation, it does not have authority to act on price gouging problems, only on price fixing between competitors.

Crist said he doesn't know if there is gouging or price fixing going on, but he said that's the reason an investigation is needed.

"We want to have an examination," he said. "How can they find out if they're being anti-competitive if they don't give it a look? The oil companies aren't going to rush out and tell them they're being anti-competitive."

Crist said he has invited the major oil companies to send representatives to his office next Tuesday to discuss the gas prices. So far only ConocoPhillips (COP: Research, Estimates) has agreed to attend, he said. Related stories Police: Accident caused oil fire Oil prices soar Big Three slam fuel standards

American Petroleum Institute (API) CEO Red Cavaney has written to the AAA, criticizing the group for it allegations.

"Implications that the petroleum industry is engaged in price gouging and intentionally engaged in creating a gasoline shortfall are clearly false," Cavaney's letter said. "Current statistical data and historical industry trends belie such inflammatory claims."

While average gas prices are nearing an absolute high point, they still are below some historical spikes when adjusted for inflation. API figures show the high point in gas prices during the Iraq occupation of Kuwait in 1990 and 1991 was $1.86 a gallon in current dollars, while the all-time high was in 1981, during the Iran-Iraq war, when prices hit the equivalent of $2.70 a gallon in current dollars.

John Felmy, the chief economist for API, an industry group representing oil producers, said most gasoline prices are set by station owners, not the industry, based on their costs and local market prices.

"We can't speak for each of the 170,000 gasoline stations nationwide," Felmy said. "But it's clear that gasoline prices are up 29 cents a gallon because crude oil prices are up about 29 cents a gallon during the same period."

Oil analyst Fadel Gheit of Fahnestock & Co. said crude oil prices have actually risen much faster than pump prices over the last year, causing oil companies to lose money on the refining and marketing side of the business.

"All the refining and marketing operations in the United States last year lost money, huge money, hundreds of millions of dollars. Would they have done that if they could fix prices and gouge consumers?" he said. While the AAA survey shows pump prices up nearly 50 percent in the last year, crude prices have nearly doubled during that time. Crude prices are up the equivalent of about 24 cents a gallon in the last few months.

Gheit and Felmy also point out that the majority of the nation's gas stations are owned by independent businessmen who have the franchise, not the oil companies themselves. Gheit said that even the gas station owners have been squeezed by wholesale prices rising slightly faster than pump prices.

But the public officials have their doubts about the legitimacy of the prices.

"I don't know if they're gouging, and I don't want to pre-suppose anything," Crist said. "But the circumstances are certainly odd and the prices are historically high."