Posted on 11/26/2006 8:45:01 AM PST by Dubya
BAKERSFIELD, Calif. - You'd think it was Texas.
Dusty roads course the scrubland toward oil tanks and warehouses. Beefy men talk oil over burritos at lunch. Like grazing herds, oil wells dip nonstop amid the tumbleweeds.
That's why the rumor sounded so wrong here in California's lower San Joaquin Valley, where petroleum has produced more riches than the gold rush. Why would Shell Oil Co. close its Bakersfield refinery? Why scrap a profit maker?
The rumor seemed to make no sense. Yet it was true.
The company says it can make more money on other projects. It denies that it intended to squeeze the market to drive up profits at its other refineries, as its critics claim.
Whatever the truth in Bakersfield, an Associated Press analysis suggests that big oil companies have been crimping supplies across the country for years. And tighter supplies tend to drive up prices.
The analysis, based on data from the U.S. Energy Information Administration, shows that the industry slacked off supplying gasoline during the price boom between early 1999 and last summer.
The industry counters that it has been working hard to meet untiring demand. It faults output quotas set by Mideast oil powers, global competition for oil from booming economies like China's, and domestic challenges like depleting wells, clean-air rules and hurricanes. They do make things harder.
"The industry is working very hard," said Joe Sparano, who heads the Western States Petroleum Association representing Shell and other drillers, refiners and marketers.
Yet the analysis found evidence of at least an underwhelming industry performance in supplying the domestic market when profits should have made investment capital plentiful:
During the 1999-2006 price boom, the industry drilled an average of 7 percent fewer new wells monthly than in the seven preceding years of low, stable prices.
The national supply of unrefined oil, including imports, grew an average of 6 percent during the high-priced years, down from 14 percent during the previous span.
The gasoline supply expanded by 10 percent from 1999 to 2006, down from 15 percent in the earlier period.
The findings support a conclusion reached by many motorists. Fifty-five percent of Americans believe that gas prices are high because oil companies manipulate them, a Pew Research Center poll found in October.
The oil business has been a profitable one. The six biggest refiners had $400 billion in profits since 2001, according to Public Citizen, a consumer group, and corporate reports.
Shell portrayed its Bakersfield refinery as old and unfit and said no attempts would be made to find a buyer.
Skeptics like Sen. Ron Wyden, D-Ore., suspected that Shell wanted to shut the refinery to sell pricier gas from its bigger refineries elsewhere.
"They were trying to squeeze the market in every possible way," Wyden said.
Shell spokesman Stan Mays denies that. He said it's "impossible to speculate" on whether Shell would have profited from closing the plant.
Government regulators eventually began to nose around, wondering whether Shell hoped to game the market, and the company finally hired an investment banker to scout buyers. In January 2005, it announced a sale to truck-stop operator Flying J of Ogden, Utah.
Flying J's 350 refinery workers process 2.7 million gallons of oil a day -- as much as Shell did.
"It's still a good refinery," engineering manager Andy Wheeler said. "There's still plenty of oil locally to produce."
A 2001 study by the Federal Trade Commission reported that some companies were deliberately crimping supply during a Midwestern gasoline price spike. One executive told regulators that "he would rather sell less gasoline and earn a higher margin on each gallon sold."
This year, the FTC reported that some oil companies were storing oil, to await anticipated higher prices.
The industry has shelved an average of 21 percent more unrefined oil from the start of 2004 through June, the AP analysis indicates. Last spring, stocks of shelved crude reached their highest level in eight years, despite the fabulous riches at hand.
Such a strategy could conceivably extend to drilling, too.
"If you think prices 10 years from now are going to be $100 a barrel, you might not be that enthused about producing as much as you can now," said energy economist Allan Pulsipher at Louisiana State University.
However upsetting to drivers, such tactics are usually viewed as legal. "A decision to limit supply does not violate the antitrust laws, absent some agreement among firms," regulators wrote in one FTC report.
"A handful of very large companies realize it's in their mutual interest to keep prices as high as possible," said Tyson Slocum, an energy expert at Public Citizen. "I don't think they're sitting around a table smoking cigars and price fixing, but I think there are sophisticated ways to manipulate the market."
Guess I better buy me some more of them Big Oil stocks!
Oil and the border are going to be or downfall. Jihadis can be killed pretty quickly, but a culture and an energy infrasturcture take time to perfect.
Well, except for the subsidies and the environmental nazis stopping drilling through the government and the courts, then, yeah, it's a free market.
or this one:
Will you give some specifics.
AP analysis is an oxymoron. Pure bias for the masses.
They still manipulating the prices down??
Pray for W and Our Troops
Yes I do they sure need it.
To hell with the consumer advocates, the oil companies are entitled to and should charge whatever price they can.
BTW, I don't own any of their stock or any stock for that matter and never will.
See 31. ;-)
They actually PAY this guy to be an economist??
Allan, I'll take $60 right now over $100 ten years in the future EVERY time. Anyone with a basic understanding of economics would.
The only time I ever heard of this company they were working in a joint venture with Eevil Oil, but that was on a Captain Planet Video (/sarc)...not long before I destroyed the video.
As for prices in 1999, Google that.
An awful lot of us in the industry sat a chunk of that one out because prices here were $4.50/bbl for sour crude, $6.50/bbl for sweet crude. Drilling stopped completely in this region for the first time since oil was discovered in the early '50s.
As for investing heavily in drilling right after that price crash, who in their right mind would? Most compaines were a little slow to commit the capital outlay to new ventures at the time, and quite a few projects went on hold.
Look out folks, the Dhimmicrats are ramping up to take over or rip off 'Big Oil". Those of us who smoke(d) know what happened to product prices when they went after 'Big Tobacco".
You think fuel is expensive now, just wait 'til the government gets done looting oil compainies or takes over.
Congress only drills pages and aides.
If they had to drill an oil well it'd be a total train wreck. Believe me, they wouldn;t have been able to produce Spindletop.
You are under the naive and mistaken impression that their motive in pumping liberal bias is to make monetary profit. Let me break the news to you. It is not. Profit is the farthest from their minds. The main goal is to bring about societal change.
So why aren't they heroes for trying to save the planet?
And you would be absolutely correct. - good point.
Same reason a Wall Street stock trader would stay in liberal New York. That's where the oil is.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.