`Big Oil' making a play for big bucks

June 29, 2000|By Thomas Oliphant

WASHINGTON -- Why? Why now? Why so much? For that matter, why at all?

Simple. The oil business is still as much a racket as it is economic enterprise, and politics remains as important a component in the price of its products as oil, refining and transportation costs. And where politics intrudes, antitrust collusion and price-gouging flow right along with the crude.

At first, last winter's price increases bore a straightforward connection to the attempt by the international cartel to reassert world market power by limiting production. The major U.S.-owned corporations have always been tacitly complicit in the shenanigans of the Organization of Petroleum Exporting Countries, but at least the routine was a familiar one to energy watchers and the worst of it was over by this spring.

But then, as a century of technological miracles and commercial outrages demonstrates it always does, Big Oil overreached and is now in the process of getting caught. The Federal Trade Commission's subpoenas went out at the end of last week.

At first, the political reaction focused on prices, producing fears of inflation, recession and shortage. They were mostly unfounded; this is not 1973. But the worm is turning, and the focus is shifting to Big Oil, where diligent investigators have an opportunity to produce a gusher in the next month.

Chicago and Milwaukee are slowly turning into the smoking guns after having begun the month as the designated victims.

Consider: Wholesale prices in these cities peaked at least two weeks ago. They not only peaked, they then started to plummet. But retail prices never budged until something hit the fan a few days ago called public outrage.

It started in Chicago on June 15 when the wholesale price was $1.60 a gallon, which proceeded to dive below $1.30 at the end of last week. But the retail price, $2.11 earlier in the month, was still $2.13 June 21 on average.

Slightly to the north, the wholesale price in Milwaukee nose-dived to $1.33 from $1.58 gallon earlier in June, but the retail price ($2.02 in mid-June) was still $2.01 last week.

And both of those retail prices were an eyebrow-raising 40 cents above the national average.

It's no accident. The price figures were collected by OPIS Energy Group, one of the firms that tracks the wacky world of prices in a market that is designed not to make sense so producers can make more money.

But one of the consumers of the information was Carol Browner, head of the Environmental Protection Agency, who proceeded to slice through Big Oil's pose. In office since 1993, Ms. Browner has proved that common-sense regulation can make productive allies of business and government in modern pollution-fighting, and that the process is growing a major new industry in this country.

She is one smart cop who has placed protecting public health at the center of policy making and policing. The big electric utilities have already found that out in the war over strengthening controls on smog and soot. Last week, Big Oil got a taste.

On the scene in the Midwest, she destroyed the complaint that regulations effective this year requiring cleaner fuels in parts of the country with bad summer air pollution have anything to do with the price spikes. How could they -- the wholesale price has been falling like a rock? And on the way up, the new regulations (in the works for a decade) have been found to have increased costs by the minute figure, at most, of roughly 3 cents a gallon.

These regulations were part of the major changes in the basic Clean Air Act of 1990. The second phase of the process, which is what took effect this year, had been set in stone for six years. For the scores of areas affected directly (and many others that chose on their own to go for the cleaner fuels), the new rules require additives, and in Chicago and Milwaukee the additive is ethanol, which Big Oil hates and which makes the Midwest prices look more political than market.

As Ms. Browner said to me last week, "With six years to get ready, the companies can hardly complain that their tanks were all drained and that all this hit like some big surprise. We're either talking some really poor management or some very unfair treatment of consumers."

Or worse.

The only outside event coinciding with the wholesale price declines of the last few weeks is the chorus of calls for an FTC probe of the industry. And the other coincidence that doesn't make much sense except to a conspiracy theorist is the remarkable connection between areas mandated to get the cleaner-burning gasoline and the worst of the price increases.

The "oh my God" political reaction to higher prices is an incumbent-endangering phenomenon, Al Gore included.

What we know so far is that the market is not working. We know that Big Oil's profits this year have soared. And we know that consumers have been savagely gouged. With the FTC's help, we need to know a lot more.

Thomas Oliphant is a Boston Globe columnist.

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