www.chron.com March 13, 2003, 11:40PM Bloomberg Business News

SACRAMENTO, Calif. -- Oil companies may be gouging California drivers by manipulating gasoline supplies to cause record high prices, Gov. Gray Davis charged.

Recent "unexplained" surges in pump prices may be the result of a "deliberate withholding of supply" by the oil industry, Davis said in letters to the state's top energy and public utilities regulators.

"As we well know from past experience, many energy companies would rather use Enron-style tricks to fuel their bottom lines than to fuel California homes and businesses," Davis wrote.

Retail gasoline prices in California are the highest in the United States, reaching a statewide average of $2.127 a gallon for regular-grade fuel this week, AAA said.

Gasoline prices have risen during the past three months as a strike in Venezuela cut U.S. crude supplies and tensions escalated with Iraq. Crude oil futures reached $37.83 a barrel earlier this week, the highest since October 1990.

Davis requested that the California Energy Commission and Public Utilities Commission report back to him in 15 days and asked for a recommendation on whether any matter should be referred to the attorney general for investigation. The agencies didn't return calls seeking comment.

The nationwide average pump price is currently $1.708 a gallon, up 39 percent from a year ago and 1 cent below the record set in May 2001, the AAA said. The surge in gasoline prices may still be "unjustified" because there is no shortage of gasoline, the association said last month.

Energy companies "have no qualms about using world events, such as the Venezuelan oil strike and an unusually cold winter on the East Coast, to their advantage," Davis said. "In light of a possible war with Iraq, I hope that none of these companies are engaging in war profiteering or any other types of illegal activity."

The government and many analysts dispute allegations of market manipulation. The rise in gasoline prices largely reflects shrinking crude supplies, analysts said. Crude stocks have fallen near 28-year lows after a nationwide strike in Venezuela slashed shipments from the world's fifth-largest oil exporter.

The prospect that a U.S. war against Iraq may disrupt oil shipments from the Persian Gulf has also fueled a surge in the cost of oil.

Prices for gasoline and other petroleum products are near all-time highs in the United States because of the rise in global crude oil prices, not because of "price gouging," the U.S. Energy Department said in a report earlier this week.

"There is no evidence of price gouging at any level," the department's Energy Information Administration said in its This Week in Petroleum newsletter. Profit margins for refiners and distributors "are not unusually high."

www.purdueexponent.org By Michael Williams Staff Writer The Indiana Attorney General's Office is collecting information on gas pricing in case an emergency situation is declared due to the recent increased gas rates. According to Staci Scheider, press secretary for the Indiana Attorney General's Office, the state could see a decrease in gas prices as soon as spring, but the office is still collecting an information to protect consumers from the rising prices. The recent increase in gas prices across the nation is attributed to the tensions in the Middle East, oil workers' strike in Venezuela and the colder-than-expected winter. Gas prices in Indiana are less than .01 cent below the national average all-time high of $1.7271. Andrew Stoner, deputy press secretary for Gov. Frank O'Bannon, said, "We're closely monitoring the anomalies in order to determine if an emergency needs to be declared." The governor last called the emergency in 2000 when gas prices soared due to a break in the Explorer pipeline in Canada. The governor declared the emergency to protect consumers from the rising gas prices. Prices already increased at the beginning of the year when the increased gas tax was implemented. The Indiana Petroleum Marketers and Convenience Store Association states that federal tax, Indiana gasoline tax, and state sales tax all go into figuring the prices of gas. The rest of the price comes from production, distribution and retail — all of which yield minimal return. Local businesses that are dependent on fuel are feeling the effects of the rise in gas prices as well. I. Rutlege Towing & Recovery Inc. is just one of the many business effected. Tira Clayton, of Rutledge Towing said that the company has had to make cuts in advertising and office supplies to compensate for the gas prices. With spring approaching companies will be switching from winter-grade gasoline to summer-grade — a change is required by the government. These two grades are not interchangeable. Due to the switching of grades consumers are susceptible to supply shortages, which leads to increases in price. But the supply shortage would only last until early summer. Anyone concerned with a certain gas price can submit a report by calling (866) 241-9753 or submit it online at www.in.gov/attorneygeneral.

www.11alive.com • www.atlantagasprices.com • www.aaa.com

ATLANTA (AP) -- Pat Williams had to reach deep into her pockets when gassing up her champagne-colored Lexus SUV at the BP station in Atlanta. The bill for her biweekly fill-up rang up to $38, as Georgia's gas prices hit a record high Thursday, according to the AAA Auto Club. "I think it's very disppointing. Unfortunately, it's even higher in Florida, where we are a lot," Williams said. "Now, with the economy, it's not the time for me to buy a new car... but it just takes a lot of gas to run an SUV." The state known for posting the lowest gas prices in the nation recorded an average of almost $1.56 per gallon for regular unleaded gas, sailing past its previous record of $1.47 per gallon set in May of 2001. Drivers in Savannah suffered the biggest strain on their wallets, paying an average of nearly $1.60 per gallon Thursday. Georgia was just one of 17 states to break gas price records over the past week. Other states posting record highs include:    • Alaska    • Alabama    • Arizona    • California    • Florida    • Louisiana    • Maine    • Mississippi    • North Carolina    • Nevada    • Oregon    • South Carolina    • Tennessee    • Utah    • Vermont    • Washington San Francisco came in with the highest price in the country at $2.25 cents per gallon. AAA, which surveys more than 60,000 gas stations daily, has been tracking prices since the mid-1970s.

"We really saw a lot of speculative pricing in the fourth quarter of 2002 because the talk of war with Iraq has been going on for a while," said Gregg Laskoski, spokesman for the AAA Auto Club South, which serves Georgia, Florida and parts of Tennessee.

Experts have also attributed increases to lowered supplies from the harsh winter and West Coast refineries switching over to corn-based additives from MTBE, an additive that is blamed for polluting drinking water after it leaked from storage tanks, which temporarily cut gas supplies. Geoff Sundstrom, spokesman for AAA's national office, said the biggest price jumps have come in the West Coast and Southeast. West Coast increases came largely from the annual changeover from winter to summer gasoline formulas, which temporarily restricts supply. California, Washington and Nevada are among those states with the earliest changeover deadlines.

Price increases in the Southeast have been exacerbated by the oil strike in Venezuela, which supplies as much as 13 percent of U.S. fuel -- particularly to that region.

"When that oil strike came about, those fuel sources almost diminished to nothing," Laskoski said, adding that the effects of that strike are expected to be felt though the latter part of this year.

Sundstrom said drivers can expect prices to continue rising, as the rest of the country also gradually converts to cleaner burning fuel.

"We'll get a better feel this summer once everybody implements their warm weather fuel blends," he said.

www.wnewsj.com Fri, Mar 14, 2003, 09:19 PM by Jeff Hibbs

March 14, 2003 - Claims of gasoline price gouging are examples of politicians and consumers getting pumped up over nothing, an economist told the News Journal Tuesday. "In 1982, a gallon of gas cost on average $1.40. Since then, the consumer price index has doubled," said Lee Coppock, a professor of economics at Hillsdale [Michigan] College and adjunct scholar with the Buckeye Institute. "If you look at it, as long as gas remains below $2.80 a gallon, it’s still gone down in real terms. If somebody was to buy Gatorade by the gallon, it costs about $10 a gallon. Vicks Nyquil costs about $180 a gallon. Pepto-Bismol costs about $125 a gallon. So, just be glad that your car runs on gasoline." Allegations of gouging at the pump last surfaced in the wake of the Sept. 11, 2001 terrorist attacks. Throughout the country — including in Wilmington — gasoline prices soared as motorists flocked to the pumps. In Wilmington, the cost of a gallon of gasoline doubled at some locations. Coppock defended retailers’ decisions. "Put yourself in their position," Coppock said. "You’re sitting here, and in one afternoon all you know is this: some guys from the Middle East have just bombed the World Trade Center, and you don’t know where your gasoline is going to come from in the future. You’ve got some in the ground, but you have no idea where that’s coming from in the future. You don’t know what it’s going to cost, because you know there’s going to be some turmoil in the Mideast and you know the price of crude oil is going to rise. "So, what are you going to do to make sure that you don’t run out of gasoline, so that you can at least sell something? I think those guys are the ones that are getting the squeeze. They’re in a very risky environment. They’re just reacting as rational businessmen." The potential for conflict in the Mideast and labor problems in Venezuela will likely result in continuing increases in gas prices, Coppock said. But he said he doesn’t expect to see huge or long-term jumps or gouging as end results. "I don’t believe so. I think that we should be very surprised if we don’t see gas prices rising," Coppock said. "The main reason is the big uncertainty with regard to Mideast conflict. If you look at an indicator to see if that should affect gasoline prices, you would look at crude oil prices, which have risen above $37 per barrel now. And they were less than $20 about a year ago. So, you would assume that gas prices should rise, just to reflect an increase in cost. Retailers cannot just give this stuff away." Contrary to conventional thinking, Coppock said the purchase of gasoline is a "voluntary process," one that works against the argument of price gouging. "I think people often times think, ‘Well, gas is a necessity. We certainly have to have it.’ And certainly, to an extent, that’s true," Coppock said. "But we can change our behavior to affect the amount of gasoline that we consume. We can carpool. We can ride some sort of public transportation a lot of times. Or, in the long run we could live closer to where we work or where we commute to on a regular basis. "And we can buy different kinds of automobiles. You look around and you see people buying SUVs, you see people buying cars that are not in any way conserving, as far as gasoline is concerned. It’s not logical to term a voluntary transaction, which people do not have to undertake, as gouging from one party to another."

www.leesburg2day.com Teresa Brumback

Mar 13, 2003 -- As consumers are reeling from gas prices surging to an average $1.63 a gallon on the East Coast, several big oil companies are raking in healthy profits while a possible U.S-led war on Iraq looms.

Prospects about a war in the Persian Gulf region and its spillover effect on oil supplies and prices is creating havoc in the commodities market, experts say.

The U.S. Department of Energy is forecasting retail prices to peak in April at $1.76 a gallon because of the gyrating oil markets, increases in crude oil and normal seasonal upturn in demand in gasoline markets.

Oil experts and suppliers say the prospects of war and other factors—but not supply and demand issues as many believe—has made commodities markets skittish, driving up the crude oil prices which closed at $37.78 a barrel last Friday, twice what it cost this time last year and some $12 more than it cost in November. The cost of gasoline—along with diesel, heating oil and other petroleum products—has gone up primarily because refiners are paying more for crude oil, the principal cost component of a gallon of gasoline, according to the Department of Energy’s Energy Information Administration.

The rising prices are playing havoc with commuters and businesses, but the world’s large oil companies aren’t complaining. Exxon Mobil Corp., for example, last year posted quarterly profits in excess of $20 billion. Royal Dutch Petroleum Company, parent of Shell oil saw net proceeds increase 33% to $107.66 billion last year.

But American Petroleum Institute spokesman Ronald J. Planting cautioned that profit margins are misleading because a lot of the oil giants’ profits gains are generally below last year’s levels. The API sides with DOE’s explanation for the rise in oil prices.

“The most significant factor in the rise in gas prices is the rise in prices on the crude oil market,” said DOE’s Energy Information Administration spokesman John Cogan. Those are influenced by OPEC instituted production cutbacks, uncertainty in the commodities market, and a strike on Venezuela in December.”

As of 2002, Venezuela ranked fourth in countries supplying oil to the United States and Iraq ranked seventh. Iraq accounted for 3.3 percent of the United States’ total imports of oil, according to the API. In ranking order from highest to lowest, the top 10 exporters of oil to the United States for last year were Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, United Kingdom, Iraq, Norway, Angola and Algeria.

During the first seven months of 2002, the United States imported an average of 566,000 barrels per day from Iraq, the world’s second largest proven reserves of oil with 112 billion barrels. Iraq also contains 110 trillion cubic feet of natural gas.

On the worldwide market, February crude oil prices moved higher than expected pushed by fears of the war, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher natural gas prices in the United States, according to the EIA.

But Virginia Attorney General Jerry Kilgore is among those who are not swayed that those factors are chiefly responsible for what area oil dealers say are record prices at the pumps. In Loudoun, a random survey Monday showed that at Plaza Texaco in Leesburg, prices for a gallon of regular gas were $1.66, $1.65 at Jock’s Exxon and $1.74 at Middleburg Exxon.

As part of its consumer mission, the Attorney General’s Office will conduct an inquiry by a special task force this month into whether oil-price gouging is behind skyrocketing prices statewide.

“The task force will be talking to retailers, wholesalers, and refiners, to get to the bottom of the question,” said Kilgore’s spokesman Timothy M. Murtaugh. “Clearly, the price of a gallon of gas is rising. What we want to find out is whether it’s due strictly to market forces or whether it’s being artificially raised.”

The probe was launched following inquiries about possible gouging from gas manufacturers, he said.

William B. Holtzman, owner of Holtzman Oil Corp., an oil distributor for 31 years supplying 100 stations in Virginia, West Virginia and Maryland, said he believes, as many experts do, that the wild swings in the commodities market are to blame for the rising prices. “When you have uncertainties with Iraq, the speculators who want to make money on crude play in the commodities market. That just wreaks havoc with the prices. It’s not supply and demand. I don’t believe there’s any supply problem. The commodities market sets the price.

“It just drives us crazy,” Holtzman added of the price hikes. “Friday we have some increases by 5 cents in heating oil and gas from the suppliers.”

Prices for heating oil from Holtzman Oil have climbed from $1.39 a gallon in December to $1.42 in January, to $1.79 currently. “It’s really spiked because of the commodities market,” he said. “Everybody thought we’d be at war today. The speculators thought so, so they were probably buying it up.”

Last winter, fuel oil was unusually low at under $1 per gallon, because of an unseasonably warm winter and a glut of the product.

Crude oil could shoot up to $50 a gallon if the United States goes to war, Holtzman predicted. “It got to $40 a barrel during the energy crisis. During the Gulf War, the major companies locked their prices for seven days. I thought that was very patriotic. It kept speculators from escalating the price. They could do that now if they could control the crude,” he added.

A lot of oil companies also own the crude oil, he said. “When they go up, they also make money.”

He predicted that if the war pans out, gas prices at the pumps will drop to the $1.20 range.

But market forces are responsible, said Holtzman, not artificial inflations of prices. “When you have talk about gouging, that’s a political thing that someone wants to make hay out of,” Holtzman said.

In the Washington area, gas prices are 10 cents higher per gallon than in Clarke County and other outlaying counties to the west because of a gas tax in Loudoun County and a special metro tax applied because of vehicle-caused air pollution in the Washington area.

James L. Pumphrey, owner of Jock’s Exxon, a family-owned business in Leesburg since 1965, said prices at the pumps are the highest he’s ever seen. “The oil companies react to the way the stock market goes. The slightest word sends the future markets going one way or the other. We have to pass the costs on.”

From what he’s seen, Pumphrey said people aren’t changing their driving habits because of the gas prices. “I think people are still out there doing pretty much what they want to do. With the volume of traffic I see out there, it hasn’t.”

But Pumphrey and others worry about the effect on gas supplies and prices if Iraq’s leader Saddam Hussein sets fire to the oil fields as he did in Kuwait after the Gulf War. If that happens, Pumphrey predicted that would be followed by an initial spike in prices. “Here lately, the least little thing has caused the market to spike, even after comments that Colin Powell made to the UN,” he said of the U.S. Secretary of State.

Loudoun County Public Schools had already braced itself for the gas price hikes. “It hasn’t affected us much. When we started the year we projected more than what we needed, so we’re OK,” said school system spokesman Wayde Byard. “If it shoots up to over $2, we’ll have a problem.”

This year the school system budgeted an average of $1.50 a gallon for diesel and gas. “The 12 snow days helped because buses weren’t on the road,” he said.

For heating oil, the school system is projecting to spend $1.2 million, under the $1.4 million it has allocated.

Loudoun County had already prepared for a worst-case scenario with gas prices. “It’s not a killer thing for us, not like the buses are for the schools,” said County Budget Chief Ben Mays.

For FY 2003, the county budgeted $2 a gallon, but is spending $1.45 for gas and $1.54 for diesel for its 900 vehicles including deputy cruisers, vehicles for fire and rescue, building inspectors and utility, maintenance, and parks and recreation personnel.

Budget figures on total expenditures for fuel were unavailable at press time.

“We are proposing the same $2 a gallon budget in FY 2004, in consideration of the fluctuating prices,” said Jay M. Snyder, director of General Services. No operations have had to be curtailed because of the price hikes, he said, adding, “We’re within the budget.”

Leesburg is also banking on prices being higher than last year. Last year the town budgeted $110,000 for diesel and gasoline, and for next year has budgeted $125,000, said Philip L. Rodenberg, deputy town manager.

"We’re spending more,” said Rodenberg, particularly with the recent snow blizzard and trucks working around the clock.

Gas and diesel are needed by the town’s police, street and utility crews.

Effects of price hikes are simmering at the state level as well. Virginia State Police are projecting to spend $2.7 million for gas, compared to last year’s expenditure of $2.5 million.

“We have not sent out any instructions to troopers on fuel savings measures,” said police spokesman Lt. Gary B. Payne. “We do constantly send out reminders to drive in a manner to save fuel.”

During previous gas crises, State Police were required to park patrol cars for 10 minutes each hour. “Our normal patrol would be to constantly patrol the interstate, monitor for traffic hazards and disabled motorists,” Payne said.

Over the past three months police have spent an extra 25 to 30 cents per gallon on gas, while using over 200,000 gallons a month, according to State Police Property and Finance Officer Douglas W. Dix. “We’re having to make up the extra money from other areas,” he said.

As oil prices are rising, supplies are down. Total world inventories by oil-exporting countries reached an estimated 2.4 million barrels at the end of February—the lowest level since March 2000, according to the Energy Information Administration.

Prices are likely to remain on the high side and subject to substantial volatility through 2003, the agency stated. The continued loss of much of Venezuela’s oil exports and the risk of increased tensions in the Middle East could cause oil prices to spike. A strike against the oil sector in Venezuela continues and the recovery in production and exports of crude and oil products has been slow.

If the oil strike is prolonged and tensions in the Middle East continue, the chance of another price spike will remain high, it added.

Experts point to historical trends for price hikes. Prices also were volatile during the Persian Gulf crisis. When the U.S.-led air war began, the United States released supplies from its strategic petroleum reserve and prices fell.

Today, the United States has 600 million barrels in storage in the reserve, equivalent to 300 days of imports from the Middle East. The United States uses 20 million barrels a day, according to Planting.

But it is unlikely the United States would have to depend heavily on its strategic petroleum reserve due to supplies worldwide including strategic stocks available in Europe and Asia, the API spokesman said.

For the week of March 3, gas prices in the United States averaged $1.69 at the pumps, compared to the average of $1.14 a gallon in 2002, according to the Energy Information Administration.

The East Coast average for the week of March 3 was $1.63, compared to $1.10 last year at this time.

Nationally, last week the lowest prices were reported at an average of $1.58 on the Gulf Coast. The highest average was at $1.93 on the West Coast.

Cogan couched predictions about future increases, pointing to a vast climate of economic and political uncertainty worldwide.