Posted on: Friday, May 28, 2004
Study ties '90s oil mergers to high gas prices
By James R. Healey and Barbara Hagenbaugh
USA TODAY
A federal agency says big petroleum-industry mergers in the 1990s reduced competition, made it harder to get cheap, unbranded gasoline and contributed to high gas prices.
But even as the General Accounting Office investigation of the mergers was made public yesterday, there were signs that a price peak might have arrived.
Oil prices fell a hefty $1.26 to $39.44 a barrel yesterday, lowest in three weeks. And the nationwide average price of unleaded regular gas retreated 0.2 cents to $2.052 a gallon, including taxes, AAA said. The wholesale price of gasoline fell 3.4 cents to $1.385 a gallon.
"I wouldn't be surprised if this holiday weekend you'd be paying the most for gasoline for the year," says Phil Flynn, senior energy analyst at Alaron Trading in Chicago — assuming no major terrorist attacks or other catastrophes.
Crude oil makes up about 45 percent of the price of gas; federal, state and local taxes are 23 percent. The rest mainly goes to refiners, with a few percent to retailers.
Oil prices have been pushed higher by speculation that there wouldn't be enough when summer driving season began. Memorial Day opens that season, and there appears to be enough oil and gas, barely.
OPEC has said it will consider boosting oil output, making it appear supplies will be plentiful. U.S. Energy Secretary Spencer Abraham says the United States also anticipates the possibility of receiving extra oil from Mexico, Nigeria and Russia.
The GAO study tallied 2,600 petroleum mergers between 1991 and 2000, 13 percent of them involving refining and marketing. Researchers found that six of eight mergers studied led to gas prices averaging 2 cents a gallon higher than otherwise. Two mergers led to declines of about 1 cent a gallon.
The increase was highest on the West Coast — up to 7 cents a gallon.
GAO calls the fallout from the big mergers "market concentration," and says it "generally led to higher prices. Forty-six states and the District of Columbia had moderately or highly concentrated markets by 2002, compared to 27 in 1994."
The report says the mergers led to decreased availability of generic gasoline, which is usually cheaper than name-brand fuel. Saying they prefer higher efficiencies and lower credit risks of dealing with big distributors, major oil companies set minimums on gasoline purchases that small, low-price distributors couldn't meet.
The Federal Trade Commission, which oversees mergers, called the report flawed and said it is not "a reliable basis" for evaluating the impact of big oil mergers.
The GAO report was requested by Sen. Carl Levin, D-Mich.
