Congress Questions Gas mess

by : Mike Bartley

Congress is questioning whether investment decisions and industry mergers have expunged a supply cushion. The House Judiciary Committee's antitrust task force last Wednesday opened the first of a number of hearings on oil industry concentration with its chairman noting that gasoline prices have soared well above $3 a gallon and asking, "How did we get into this mess?"

"Oil companies today are enjoying record profits, and while they could use those profits to invest in more production capacity, instead they use the money to buy back shares in the markets," complained Rep. John Conyers Jr., D-Mich., the panel's chairman.
Oil companies are saying soaring gasoline prices are brought by unexpected refinery shutdowns. However, John Felmy, the chief economist at the American Petroleum Institute, cast off suggestions that companies want to restrain production to keep prices high and said refiners have been producing record amounts of gasoline.

Rep. Bart Stupak, D-Mich., who has proposed a bill that intends to make oil and gas price gouging a federal crime, questioned why gasoline prices soared even as crude oil prices dropped. "In April... crude oil was $7 a barrel cheaper than last year (but) gas prices were almost 50 cents a gallon higher," said Stupak. "Clearly there's more at play than simply the world crude oil market."

DOE's Energy Information Administration and other industry experts have cited an unusual number of refinery outages for the tight gasoline supply, resulting in higher prices. Additionally, the agency said that as refineries get back on line, gasoline inventories are moving higher and that prices may begin to recede.

With the intensifying clamor for fuel-efficient cars is the apparent shift of auto shopping behavior. As gas prices reach their peak level in recent history, with prices as high as $3.10 a gallon for regular unleaded, majority of purchasers plan to take steps to combat the hit to their wallets.

According to the latest Kelley Blue Book Marketing Research study on gas price effects, half of new vehicle shoppers plan to purchase less retail items such as clothes and shoes, more than a third plan to eat out less often, and another third plan to buy less media entertainment items as long as gas prices continue to squeeze their wallets. Luxuries like a night out on the town, music sales, as well as movie ticket sales could all experience declines through the summer when gas prices are expected to top $4 a gallon.

"These results make it clear that American consumers are more than willing to make changes in their buying decisions due to rising gas prices," said Jack R. Nerad, the executive editorial director and executive market analyst at Kelley Blue Book. "This will have negative implications for the domestic manufacturers as they are perceived as building low mileage vehicles and will therefore be an issue the new ownership of Chrysler will have to deal with immediately to assist in the turn-around of that company."

The study found that when it comes to shopping for their next new vehicle, nearly six out of 10 new-vehicle purchasers (59 percent) say that the upward trend in gas prices has either changed their mind about the vehicle they are considering buying or are strongly considering the purchase of a vehicle they normally would not have considered.

With the intensifying gas prices inflation and analysts' expectations for even higher prices heading into the summer, only a small few are not yet taken aback. Other purchasers, on the other hand, plan to do more research before they make auto purchase. The gasoline prices are accelerating like performance parts. As such, the worst is anticipated by both the experts and the purchasers.

The latest study stressed that 27 percent of in-market new-vehicle shoppers said that current gas prices are having little or no effect on the vehicle they are planning to purchase. Fourteen percent of vehicle purchasers said higher prices did not have an effect on their decisions because they were already planning to buy a fuel-efficient vehicle. Forty-one percent of those participating in the survey said that if gas prices rise an additional 25 cents above current levels, they too will start researching vehicles they would not normally have considered.