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FTC probing possible oil-market, gasoline price manipulation

This article first appeared in the St. Louis Beacon, June 21, 2011 - WASHINGTON - When Arab unrest was peaking and Mississippi River flooding was threatening refineries a month ago, gasoline prices in the St. Louis area and around the nation hit new heights -- and several senators pressed for federal investigations into possible price-fixing.

Prices at the pump have declined since then, but the Federal Trade Commission took action this week, telling lawmakers, including Sen. Claire McCaskill, D-Mo., that it has opened an investigation into possible manipulation of markets and prices by oil producers, refiners, transporters, marketers and traders.

Noting that "crude oil and refined petroleum product prices and profit margins increased substantially earlier this year," FTC Chairman Jon Leibowitz wrote to McCaskill that "we remain committed to preventing and prosecuting any anticompetitive, fraudulent, or otherwise illegal activity" found during the investigation.

Utilizing a potentially important tool for its inquiry, the FTC authorized its investigators to use what is called a "compulsory process," which requires firms and individuals to submit information relevant to the probe.

That FTC probe will also provide information to a wider panel, the Oil and Gas Price Fraud Working Group -- led by the U.S. Justice Department in conjunction with federal and state law enforcement agencies -- that is looking into allegations of violations of civil or criminal law in the oil and gasoline markets. While the FTC has the power to impose civil penalties on companies found to have manipulated oil prices, the Justice Department would likely handle evidence of collusion or price fixing.

Saying that she is "pleased that the FTC took our concerns seriously," McCaskill issued a statement Tuesday pledging to "monitor this situation closely to ensure that the FTC conducts a thorough and accurate investigation." Sen. Jay Rockefeller, D-W.Va. -- who had led a separate group of lawmakers that urged the FTC in March to crack down on oil market manipulation -- said this week that he was "not convinced that these price increases were necessary or reflected true market conditions."

U.S. oil prices, which had risen to nearly $115 a barrel in May -- hiking average prices for regular gasoline to about $4 a gallon in St. Louis -- have fallen to about $93 a barrel this week. The reasons for the decline include a buildup of crude oil inventories in the Midwest, as well as a slowdown in the economic recovery that has dampened demand.

Mike Right, a spokesman for AAA Missouri, told the Beacon on Tuesday that the current average gasoline price on the Missouri side of the St. Louis area was $3.507 -- a decline from the May peak of nearly $4 but considerably above the average price of $2.673 in the same week of last year. "Gas prices should remain fairly steady for the coming weeks, if not even showing some moderation," Right said.

The latest probe into oil-price fixing mirrors previous inquiries, which tend to peak at time when pump prices are high. Last month, for example, the Commodity Futures Trading Commission alleged that two oil traders at Arcadia Petroleum Ltd., had manipulated oil markets in 2008. The company has denied the charges.

And last week, Intercontinental Exchange Inc. -- a London-based futures exchange known as ICE -- revealed Friday that it had fined Goldman Sachs Group Inc. about $40,000 for disorderly trading on price differences between Nymex and Brent oil futures in late January. ICE said that a series of large trading orders appeared to have contributed to price changes but said it found no evidence of intentional manipulation of the market.

On May 17, after published reports indicated that refiners were cutting back on U.S. gasoline stockpiles to keep prices high and inflate profits, McCaskill and a group of senators, including Sen. Dick Durbin, D-Ill., called for an ITC investigation.

According to the Energy Information Administration, the senators said, U.S. refiners were using 81.7 percent of their capacity -- a 7 percent decline from the previous year. This year, refiners have seen a significant increase in their refining margins. But U.S. refiners have picked up the pace in recent weeks, with data from last week indicating that they were operating at about 86 percent of capacity.

Oil industry experts have said the relatively low use of refinery capacity this spring related to a lower demand for gasoline and higher use of ethanol blends. Charles T. Drevna, president of the National Petrochemical and Refiners Association, said last month that "the cost of oil and gasoline is set by the free market," and predicted that the latest inquiries will find no evidence of wrongdoing.

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.

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