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."
something got truncated there.
"declining oil production"
I don't hate business. In fact, I'm much in favor of very successful business. What I object to is the attitude that places profit over the welfare of the United States. I think that honesty is missing from most executive suites and the board rooms in American industry.
Here is the thing.. No profit the company goes under... Companies need to make a profit so the company can stay in business.. Basic Free Market Econ 101 .....
Dog, don't let it get lost in the shuffle that rig count means rigs employed to LOOK FOR oil and that there are more failures to find than successes. Some finds are also not economically feasible to complete. That is the big reason rig count doesn't relate to refinery production or finished product prices.
When prices are high oil field folk are much more eager to look because the returns are higher. Therefore, the tig count is higher but the success rate usually isn't.
Do you think that notion was ever in doubt?
Thank you. I unwisely believed that chart indicated producing rigs.
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.