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Senate blocks McCaskill-backed effort to end Big Oil tax breaks

This article first appeared in the St. Louis Beacon, May 18, 2011 - WASHINGTON -- A few hours after Sen. Claire McCaskill, D-Mo., called for a probe into possible price-fixing of gasoline, the U.S. Senate failed to advance a bill Tuesday that she and other Democrats advocated to end tax breaks for the five biggest oil companies.

The proposal got a majority of 52 votes, but the opposition of Senate Republicans -- including Sen. Roy Blunt, R-Mo., and Sen. Mark Kirk, R-Ill. -- and some oil-state Democrats assured that the measure fell short of the 60 votes needed to stop a threatened filibuster. Sen. Dick Durbin, D-Ill., joined McCaskill in voting for the legislation.

McCaskill argued that the $2 billion a year that would be saved by eliminating tax breaks for Big Oil could be used toward easing the budget deficit. "How are we going to tackle the bigger problems if Republicans couldn't find the courage to cut handouts for the most profitable companies in the history of the world?" she said after the vote. "Oil companies aren't struggling. Missouri families are."

But Blunt contended in a Senate speech that the McCaskill-backed bill "would make it even harder to create energy jobs," and "will almost certainly increase gasoline prices." He said the best way to lower gasoline prices, over the long run, is to make it easier for oil companies to explore and drill for oil in this country. As for deficit reduction, he argued that the amount saved per year was about what the U.S. pays per day in interest on its debt.

The lead sponsor of the Big Oil bill, Sen. Bob Menendez, D-N.J., labeled as "absurd" the assertion by opponents that oil companies would respond to a tax hike by raising gasoline prices. While the legislation has been stopped for now, some supporters plan to push to add such a provision to a deficit-reduction agreement that is being negotiated behind the scenes.

Earlier on Tuesday, McCaskill and Senate Democratic leaders including Durbin had upped the ante by calling for a federal probe of possible price fixing of gasoline.

Our earlier story:

WASHINGTON - Decrying high gasoline prices at a time when oil production is booming, U.S. Sen. Claire McCaskill and Senate Democratic leaders asked Tuesday for a probe into "potential price fixing" of gasoline by the nation's refiners.

"Gas prices have really delivered a gut punch to most of the people who live and work in my state," McCaskill, D-Mo., said at a Capitol news conference with Sen. Chuck Schumer, D-N.Y. Noting that trends in gas pricing appear to defy common sense, the Missouri senator suggested that "maybe it's because [refiners] decided to reduce supplies in order to increase price" and profits.

In what the nation's main oil refinery association dismissed as groundless "political theater," McCaskill and Schumer joined Majority Leader Harry Reid, D-Nev., and assistant leader Sen. Dick Durbin, D-Ill., in sending a letter asking the Federal Trade Commission to investigate reports that refiners "are cutting back on U.S. gasoline stockpiles in order to artificially keep prices high and inflate their bottom line."

Among those reports was an article in the Kansas City Star that quoted energy consultants and others as saying that refiners have kept U.S. stockpiles below average by curbing production and exporting more gasoline.

"At a time when major refiners and oil companies are making record profits and American families continue to struggle with gasoline at record prices, the idea that refiners may be manipulating the market to keep prices artificially high is offensive," the senators wrote in their letter to FTC Chairman Jon Leibowitz, urging him "to ensure that the American people are protected from this type of manipulation."

That letter was sent on the same day that the U.S. Senate was expected to vote on a bill advocated by McCaskill and several other Democrats that would end tax breaks to the five largest oil and gas companies. The bill appeared unlikely to get the 60 votes needed to overcome a threatened filibuster by Republicans and oil-state Democrats.

At the same time, the FTC already is involved in the Justice Department-led inquiry, requested earlier this month by President Barack Obama, into allegations of possible price-gouging or fraud in oil markets.

Durbin, who chairs the Senate Subcommittee that oversees the FTC's budget, said he has directed the agency to provide Congress with reports on its inquiry into "market manipulation and anti-competitive behavior in the oil and natural gas industries," but that Tuesday's letter demanded a focus on specific allegations of price-fixing.

"Big Oil is the one industry that isn't struggling to make a profit in this challenging economy" Durbin said. "The five largest oil companies in the country made $33.9 billion in profit between January and March of this year."

Pointing to a chart at the news conference, McCaskill said that U.S. refineries were operating at 88 percent capacity a year ago. "So why is it today that these same refineries today are only operating at 81 percent capacity?" she asked. She dismissed industry claims that the Mississippi River flooding has led to important refinery delays.

The Missouri senator also asked why, at a time of higher domestic gasoline prices, exports of U.S.-produced oil are now at the highest level ever. "Not only have [oil firms] cut back the capacity of their refineries, in terms of how much oil they are processing...they are also exporting more to other countries. Why isn't that amount of oil and fuel being used to alleviate the gas price here?"

Refiners Refute 'Price Fixing' Allegations

Oil refiners and oil companies dismissed the senators' allegations Tuesday as a political ploy to grab headlines in their home states.

Charles T. Drevna, president of the National Petrochemical and Refiners Association, criticized McCaskill and Schumer's news conference as "political theater" and described their allegations about possible price fixing as "baseless claims."

"Instead of telling the American people the truth about gasoline prices, some politicians continue to spin tall tales and call for witch hunts to investigate discredited conspiracy theories about America's oil refiners," Drevna said in a statement Tuesday. "Once again, the same baseless claims are being trotted out by the same cast of characters."

Drevna said that "dozens of investigations of gasoline price fixing over the years have generated plenty of headlines and political hyperbole but have failed again and again to find any evidence of wrongdoing." He asserted that "the cost of oil and gasoline is set by the free market." The NPRA's explanation of gas price levelscan be found here.

Bill Day, a spokesman at Valero Energy Corp., the largest U.S. independent refiner, told Reuters that the reason capacity is relatively low now is that refiners conduct maintenance in the spring so they are prepared to meet higher demand during the summer, when demand is highest. He said "it would be self-defeating [for refiners] to limit production at a time of high margins."

And John Felmy, chief economist at the American Petroleum Institute, a trade group that represents the oil industry, told Politico that the senators' call for an FTC probe is "kind of like the 'Casablanca' moment -- you know, 'round up the usual suspects.'" The API explains trends in gasoline prices at this site.

At last week's Senate Finance Committee hearing, executives of the five largest oil companies -- who called efforts by McCaskill and others to remove their tax breaks unfair and counterproductive -- said that gas prices at the pump are mostly a result of international trends rather than any sort of collusion at oil firms or refineries.

Rex W. Tillerson, the chief executive officer of the largest U.S. oil and gas company, Exxon Mobil Corp., said the lag between drops in oil futures and gas prices at the pump is explainable.

"The average time for overseas crude oil to reach American refineries is between 35 and 45 days. You have oil that's in inventory at the refinery, which has already been bought and paid for at some price. You have gasoline and [other] products that already have been paid for at some price, and which are delivered to your local service station.

"So when the price changes on that raw material of crude oil, that price has to make its way through that whole supply chain. Now when the price is going up, the retailer who owns the station and operates on a very thin cash flow ... has to think about what happens to [their] cash flow as this price moves through. So they do begin to price up in advance of the actual higher-cost [oil] getting to them, to ensure that they have sufficient cash flow to buy the next tanker-wagon [of gasoline] that delivers.

When oil prices start coming down -- as they are now -- Tillerson said service stations "have to recover the costs of what they've already spent on the barrels in inventory. So until those actual barrels make their way through the system to the pump, the consumer is not going to see" the lower prices. "Typically, that may take somewhere between two to three weeks, depending on how big the [price] movement is."

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