Are Gas Profiteers a Danger?
CAFFERTY: Welcome back to our little program here, IN THE MONEY. As a possible war with Iraq gets closer, the price of gasoline continues to climb. And that's raising concerns about price gouging, with average costs at the pump moving close to record levels now. They're paying the most in the far western United States. Out there in Hawaii, gasoline tops the list: a gallon of premium unleaded, $2.12. Just a penny cheaper in San Francisco. Santa Cruz, California, third highest, $2.03 a gallon. As we move east, gasoline's $1.74 in Chicago. New Yorkers pay on an average $1.81. Does this sound familiar? Well, it is but it isn't. Gas prices spiked in 1990 after Iraq invaded Kuwait, but they backed off again during the 1991 Iraq war, after the White House opened the spigot on America's strategic petroleum reserve. This time, prices are edging up more slowly and not just because of the war talk. Don't forget, it's been a cold winter with a lot of snow. There was a strike in Venezuela, went on for 12 weeks. That country's still not back up to 100 percent production with their oil. So there are other forces here getting some of the blame. If America does attack Iraq, it's not clear how that country's oil resources might be affected as we were speculating on in the last block. There's concerns Saddam Hussein might torch his own oil fields, creating more headaches if Iraq, in fact, needs rebuilding after the war. So more now on the rising price of gasoline and oil and the allegations of price gouging. We're joined from Washington by Tyson Slocum, who's the research director for the Energy Program of Public Citizen, the consumer group funded by Ralph Nader. It's nice to have you with us. Thanks for joining us.</s>TYSON SLOCUM, PUBLIC CITIZEN: Yes, my pleasure.</s>CAFFERTY: One of the debates, I know, going on in Washington these days is whether or not we should tap into the strategic petroleum reserve. Crude oil prices continuing to climb ahead of a possible show down with Iraq. Crude oil prices in 1991 peaked, actually, in October of 1990, several months before the war actually started. By the time the war they were headed back down. That's not happening this time and some people are saying we could bring the price down by tapping that strategic petroleum reserve, but the oil companies don't want any part of that, do they?</s>SLOCUM: Well, tapping into the oil reserve really is secondary, because it doesn't address the core problem here. There are two main issues that are contributing to the high gasoline prices. One is increased industry consolidation. We've allowed so many mergers over the last couple of years that it's really reduced the amount of competition in our domestic markets. And the second reason is, of course, rising crude oil prices, as you mentioned, contributed by the crisis in Venezuela and the yearlong talk of war in Iraq. But the first reason here, industry consolidation, is something that's not mentioned enough.</s>SERWER: Let me interrupt -- This is Andy Serwer -- and ask you. I mean, look, the retail gasoline business is one of the most competitive businesses in the market. You go to any street corner here, gas station here, gas station there, different brand names, different distributors. How can you tell me that there's not intense competition in this business?</s>SLOCUM: I don't have to tell you. The Federal Trade Commission can tell you. In 2001, the Federal Trade Commission conducted a study of why gas prices spiked so high in the summer of 2000. What they found was that, due to industry consolidation, several large oil companies had the power to intentionally withhold gasoline supplies in the marketplace with the sole intention of driving prices up.</s>SERWER: But then why did the prices go down after that?</s>SLOCUM: Because you cannot sustain it. I mean, why have energy prices...</s>SERWER: Well, then, there you go.</s>SLOCUM: Look, the fact is that we have uncompetitive markets. When you allow the mergers of Exxon Mobile, Chevron, Texaco and Conoco-Phillips, it's driving independents out of business. And the fact is that these large conglomerates are fully vertically integrated. Not only do they control production and drilling, they also own and control oil refineries and the retail market. In fact, the top five oil companies in the United States control over 40 percent of domestic production, over half of the oil refinery capacity and more than two thirds of the retail market. That is full vertical integration and it's reducing competition. Consumers should have access to free markets and we don't right now. You know, individual consumers don't and neither do large corporations like manufacturing firms.</s>ASNES: Wait a second. Wait a second. Look, I drive a car. I know how high the gas prices are. In fact, that looks like my corner gas station with those horrifying prices over there. But I have to ask you, this is not just a matter of supply; it's also a matter of demand. And people are not stopping to buy the gas. So clearly, I mean, we live in a free market society and there is a question of what the market will bear. The market is bearing this. It's not -- you know, this is not necessarily completely some nefarious collusion by a bunch of oil magnets. I mean, we are all filling up our cars. We still drive gas guzzling cars and we are filling them up every week and driving them around. So, I don't understand why it's just the corporations' fault, honestly.</s>SLOCUM: Well, I mean, you have to understand that oil and gas does not just impact individual drivers. I mean, there's only so much conservation that an individual can do.</s>ASNES: Oh, no.</s>SLOCUM: The fact is that high energy prices impact the entire economy. It significantly increases transportation costs and other costs for businesses in order to deliver goods to the market. That can negatively impact their earnings and also contribute to inflationary pressures. There's no question the Federal Trade Commission has found that we do not have adequately competitive markets. Senator Ron Wyden from Oregon has uncovered hundreds of documents that clearly show collusion, where the large oil companies like Chevron Texaco, Exxon Mobile were -- conspired through the mid '90s using their market control to intentionally shut independent refiners out of business. These are facts.</s>ASNES: You know what, though? If these were facts, there'd be indictments already. I'm sorry. I want to believe you...</s>SLOCUM: But how many -- how many -- where's Ken Lay? I mean, is he behind bars yet?</s>CAFFERTY: Good point.</s>SLOCUM: I mean, the fact is that we do not go after the large companies because of their ties to politicians.</s>TULLY: But on the other hand...</s>SLOCUM: It is political. The oil and gas industry has given $43 million in campaign contributions to both parties, 80 percent of that to Republicans. This is a political issue. And politicians and the lawmakers who receive their budgets from the politicians aren't going to touch it. That's why the leadership on this is coming from the state level. State attorney generals are the ones filing investigations of this issue. You're not seeing any leadership from the federal government.</s>TULLY: But these kind of arguments are always used to preserve small companies that have high costs that just don't want the competition from bigger companies that are really reducing their costs by merging. It is big economies of scale here that help consumers. Now, all these arguments are always being used to preserve the small competitors that actually drive prices up.</s>SERWER: And everybody knows the price of gas, adjusted for inflation over time, is still very low. We pay less money for gas than Europeans do. I mean, come on, Tyson. You know, 40 percent market share for the big guys, I just don't buy it.</s>ASNES: And I would like to see what action is made on individual conservation. In fact, you know, we are all driving very high, you know, very high gas burning cars. We keep our homes too hot. We ship too much by truck. I mean, yes, this is going to push up prices. It's going to create what's called a demand -- rather a cost push inflation, where the increasing price of transportation is going to push up the price of goods and services throughout the economy. That's a big danger. But why -- why is not there more discussion about cutting back on fuel use?</s>SLOCUM: I completely agree that we need to reduce demand. I mean, the United States is the third largest oil producing nation in the world. The problem is not that we don't produce enough, it's that we use too much. But we haven't seen any leadership from the Bush Administration or from Congress. In fact, Congress and the Bush Administration have flatly rejected increasing fuel economy standards. The -- Vice President Cheney ridiculed conservation as a national energy policy. So we do see a problem here. And on the point that gasoline is at the same level that it was 20 years ago, well, the fact is the costs of providing gasoline to the market, when adjusted for inflation, have dropped radically.</s>CAFFERTY: All right, Tyson, appreciate you joining us today and sharing your views on this subject. Tyson Slocum, Public Citizen research director of the Energy Program, which is associate with Ralph Nader. Thanks for being the guest on the broadcast.</s>SLOCUM: Thank you.</s>CAFFERTY: Still ahead on IN THE MONEY as we continue: with gas prices up and the prospect of war looming, find out whether Exxon Mobile is a smart place to invest. Plus, making money or buying trouble? Investors are backing out of Israeli companies and that might be your cue to move in. We'll take a look at that idea, as well. Stick around.