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Cantwell asks for investigation into refineries

Thu., June 7, 2012, 3:53 p.m.

WASHINGTON - West Coast oil refiners cut gasoline production after a fire earlier this year at a Washington state refinery, creating a supply shortage that’s left West Coast motorists now paying very high prices at a time when the rest of the nation is seeing prices plunge, according to an influential senator and a veteran energy analyst.

In a letter being sent to regulators today and obtained by McClatchy Newspapers, Sen. Maria Cantwell, D-Wash., calls on the Federal Trade Commission to investigate refinery operators Alon, Chevron, ConocoPhillips, Shell, Tesoro and BP following the shutdown of BP’s Cherry Point refinery in Washington state.

Citing a report by Portland energy consultant McCullough Research - a group whose work helped topple energy-trading giant Enron Corp. - Cantwell questioned why May gasoline prices in her state soared recently to within cents of the local record of $4.35 a gallon set in July 2008. Meantime, gasoline prices nationwide in May fell 17 cents a gallon and oil tumbled more than $14 a barrel.

The McCullough Research report, published Tuesday, questioned whether the historically low gasoline inventories on the West Coast were really a result of a fire on Feb. 17 that idled the BP plant for about three months.

Gasoline prices on the West Coast had tracked closely with the price of West Texas intermediate crude delivered at Cushing, Okla., but in May veered widely from historical norms, according to the report. Had prices followed supply costs, said the report’s author, Robert McCullough, retail gasoline prices on the West Coast would have dropped to about $3.65 a gallon. Instead, prices have been about 68 cents higher.

“The sudden price shift has provided a significant windfall for refineries and retailers on the West Coast. At a differential of $.68 a gallon, this translates into a windfall profit of $43 million a day,” the report said.

In an interview, McCullough was skeptical that the price increase is due to necessary plant maintenance and repairs at West Coast refineries - which are few in number and thus enjoy tremendous pricing power. He stopped short of alleging collusion, but he pointed to U.S. Energy Information Administration data that show a steep drop in West Coast gasoline inventories in late April and May.

“The West Coast is a gasoline island. Since there is very little transportation of gasoline between the West Coast and the rest of the United States, it’s not clear you even need to have collusion to influence prices here,” he said. “When you do not have enough competition, economists describe that as pivotal suppliers. On the West Coast there are so few players, so it’s not difficult for refiners to view themselves as pivotal suppliers.”

McCullough’s research implies that supply was withheld from the market to keep prices inflated.

“The question is not whether there was a fire at Cherry Point. It’s whether everybody else in the refining market also shut down capacity to create a shortage,” Cantwell said in an interview. “We want answers, and my constituents want answers. We think this is an anomaly without a good explanation.”

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