April 27 (Bloomberg) -- The Justice Department investigation ordered by President George W. Bush into gasoline-price increases may not find market manipulation by oil companies.
Scarcity, not illegal collusion, probably is driving up prices, said Allan Pulsipher, executive director of Louisiana State University's energy studies center in Baton Rouge.
``I don't know of anything that has been studied more frequently,'' said Pulsipher. Investigations ``always come to the same conclusion, that the forces of supply and demand, as bizarrely as they sometimes interact and behave, basically explain what has happened,'' he said.
Besides ordering the price probe, Bush said April 25 that he will free up oil that was supposed to be set aside for the nation's emergency reserves and waive federal rules that he said are creating bottlenecks. The average price of a gallon of regular gasoline in the U.S. is almost $3, sparking complaints from consumers and congressional calls for investigation.
Crude oil surged to a record $73.35 a barrel on the New York Mercantile Exchange last week. Prices eased a bit this week as inventories rose. Crude oil sold for about $22 a barrel 10 years ago.
``We have been investigated over the past two decades over 30 times by the Federal Trade Commission and others, and every single one of those investigations has exonerated the industry,'' Red Cavaney, president of the Washington-based American Petroleum Institute, the industry trade group, told a press briefing yesterday.
2001 Investigation
In June 2000, the price of gasoline jumped to $2.13 a gallon in the Midwest, sparking a Federal Trade Commission probe. The FTC found no evidence of illegal behavior, attributing most of the increase to shortages caused by pipeline breaks and production difficulties.
The following year, the FTC investigated price increases along the West Coast without finding collusion. That probe sought to determine whether producers of gasoline refined to meet California's stringent anti-pollution laws had conspired with wholesalers to raise prices.
This year, in addition to the annual change to a different formula for summer fuel, experts attribute shortages to the switch to ethanol from the fuel additive MTBE, methyl tertiary butyl ether. Ethanol is in limited supply and takes time to be shipped because it can corrode pipelines and must be carried to local terminals by rail, truck or barge.
Switching to Ethanol
Oil companies decided to switch to ethanol to boost octane as they phase out MTBE, which has been linked to groundwater pollution. Congress has refused to give the companies immunity from lawsuits over MTBE.
The gasoline price rise has renewed calls from some in Congress to outlaw gouging and to revive the ``windfall profits'' tax for oil companies that was repealed in the late 1980s. Also, Democratic Senator Charles E. Schumer of New York called for a study of whether ``we should break up the big oil companies.''
Proposed legislative solutions ``completely miss'' that ``this is a world oil market,'' said Severen Borenstein, director of the Energy Institute at the University of California at Berkeley.
```Big Oil' is Saudi Arabia. `Big Oil' is OPEC. The reason the price of oil is $72 a barrel is not because of Exxon or Chevron or Shell,'' he said. Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell are three of the world's four largest oil companies.
A Distraction
Mark Cooper, research director of the Washington-based Consumer Federation of America, said focusing on collusion is a distraction and blamed oil industry mergers that have concentrated power in too few hands.
Oil refiners ``don't need to collude to influence the price,'' he said. ``The oil companies will never build enough refineries to put downward pressure on price. That is not in their economic interest.''
The price increases have also prompted Republican Senators Arlen Specter of Pennsylvania and Mike DeWine of Ohio to propose enforcing U.S. antitrust laws against Saudi Arabia and other members of the Organization of Petroleum Exporting Countries.
Applying U.S. antitrust laws to OPEC would go against a longstanding legal doctrine that U.S. courts don't have authority to rule on the legality of foreign government actions, said Herbert Hovenkamp, an antitrust expert at University of Iowa law school in Iowa City. It also might prove difficult to enforce.
The proposal also raises a foreign-policy issue because oil is ``a natural resource for these countries'' and ``the way they set price is by controlling output,'' Hovenkamp said.
``We would be outraged by the notion that a foreign country would tell us how much coal or how much hardwood'' the U.S. should produce, he said.
Profit Margin
Federal antitrust law prohibits companies from acting in concert to fix prices. There is no federal law against individual companies engaging in price gouging.
Many states seek to ban the practice by barring retail gasoline prices that exceed a specific profit margin. Other states have enacted laws to prohibit below-cost prices to protect independent dealers from competition by discount gasoline stations run by convenience store chains such as Circle K Corp.'s ``gas-and-go'' outlets.
Price gouging is a vague concept, and laws to prevent it are difficult to enforce, said Robert Burka, a Washington antitrust lawyer and former FTC official.
``If you are a retailer, when is that happening?'' he asked. For example, a Louisiana service station owner with 50,000 gallons is justified in raising prices to ration a limited supply after Hurricane Katrina, he said.
``The laws of supply and demand set the price,'' Burka said.
