Biden asks FTC to examine gas pricing for illegal conduct

President cites ‘mounting evidence of anti-consumer behaviour’ by oil-and-gas companies.

Joe Biden has asked the Federal Trade Commission to investigate manipulation by US oil and gas companies. Picture: Getty Images

President Biden called on the Federal Trade Commission to investigate whether oil-and-gas companies are participating in illegal conduct aimed at keeping gasoline prices high, in the latest effort by the White House to respond to public concerns about costs for everything from fuel to groceries.

Outside analysts expressed scepticism that the FTC would find enough evidence to substantiate Mr. Biden’s allegations, and they said the president has few options for quickly lowering gasoline prices.

In a Wednesday letter to FTC Chair Lina Khan, Mr. Biden alleged that there is “mounting evidence of anti-consumer behaviour by oil-and-gas companies.” The president said gasoline prices had risen about 3% from a month earlier even as the price of unfinished gasoline, which hasn’t yet been blended with other liquids for use in vehicles, was down more than 5%.

“This unexplained large gap between the price of unfinished gasoline and the average price at the pump is well above the pre-pandemic average,” Mr. Biden wrote. “Meanwhile, the largest oil-and-gas companies in America are generating significant profits off higher energy prices.” The president called on Ms. Khan to “consider whether illegal conduct is costing families at the pump,” asking her to “bring all of the Commission’s tools to bear if you uncover any wrongdoing.” “The FTC is concerned about this issue, and we are looking into it,” said FTC spokeswoman Lindsay Kryzak.

ClearView Energy Partners, an independent research firm, found that retail gasoline prices were closely correlated with unfinished gasoline prices over the last 10 years, but sometimes diverged. The firm found 13 instances over the past decade where monthly prices for unfinished gasoline went down while retail gasoline prices went up.

“This gives us some reason to suggest that today’s FTC investigation might end up like past such efforts: with limited evidence to validate assertions of market manipulation and price gouging,” the firm said.

Rapidan Energy Group, a research and consulting firm, analysed the disparity between unfinished gasoline and retail pump prices cited in Mr. Biden’s letter and said the difference wasn’t out of the normal range. Unfinished gasoline requires blending with other liquids to be suitable for use in spark-ignition engines, according to the US Energy Information Administration.

The American Petroleum Institute, the industry’s top lobbying group, called the letter a “distraction from the fundamental market shift that is taking place,” adding that demand has increased as the economy picks back up.

“Rather than launching investigations on markets that are regulated and closely monitored on a daily basis or pleading with OPEC to increase supply, we should be encouraging the safe and responsible development of American-made oil and natural gas,” Frank Macchiarola, the group’s senior vice president of policy, economics and regulatory affairs, said in a statement.

BP PLC chief US economist Michael Cohen said that gas prices reflect “the balance between oil supply and demand.” A Chevron Corp. spokesman declined to comment and referred reporters to API. An Exxon Mobil Corp. representative didn’t respond to a request for comment on the letter. Royal Dutch Shell PLC declined to provide an immediate comment.

Facing political fallout from high gas prices, past presidents of both parties have called for similar investigations into alleged price gouging and manipulation in the market. The efforts rarely result in federal action against companies, though some state attorneys general have taken action against gas-station owners for alleged price gouging.

The commission looked into gasoline price manipulation after higher prices following Hurricane Katrina in 2005, examining the behaviour of refiners, wholesalers and retailers. It found no evidence of widespread market manipulation.

“Demanding that the FTC investigate gouging is the oldest tool in the tool kit,” said Bob McNally, who served as an energy adviser to President George W. Bush and is the founder of Rapidan Energy Group. He added that the trend began during the first gasoline crisis after World War I.

Mr. McNally and some other analysts questioned the merit of the letter’s allegations.

“I think it’s a stretch to pick one month’s data and conclude it’s evidence of anticompetitive behaviour” because of the historic price volatility of unfinished gasoline and pump prices, Mr. McNally said.

Many analysts say that gasoline prices have risen along with climbing oil prices, spurred by an uptick in global economic activity and moderate oil production growth that hasn’t met climbing energy demand. Current gasoline price increases relative to oil prices are in line with historic trends, these analysts say.

US gasoline prices in October averaged $US3.38 a gallon while US oil prices averaged $US81.48 a barrel, according to the US Energy Information Administration. The last time US gasoline prices reached similar levels in October 2014 – $US3.25 a gallon – US oil prices were $US81.40 a barrel. US oil production sharply increased since last year to about 11.5 million barrels a day, according to the EIA, but is still well below pre-pandemic levels of around 13 million barrels a day.

Mr. Biden and his senior advisers have for weeks been weighing policy options in response to high gas prices, amid mounting concerns about inflation.

US inflation hit a three-decade high in October. Gasoline prices were up more than 60% in mid-November from a year earlier, according to the EIA.

Mr. Biden has called on the Organisation of the Petroleum Exporting Countries to increase production to ease shortages and lower prices. OPEC has so far rebuffed those requests.

As gas prices soared in recent months, some of Mr. Biden’s senior advisers have urged him to release oil from the national Strategic Petroleum Reserve, but the administration hasn’t done so. Asked about the impact on prices of an SPR release, Stephen Nalley, the acting EIA administrator, told a Senate committee this week, “Ultimately the amount of impact would be relatively short-lived. It would depend on how much was released.” Mr. Biden has faced criticism from environmental activists for pushing OPEC to pump more oil. The activists say that the efforts conflict with his longer-term commitment to reduce US greenhouse-gas emissions and wean the country off fossil fuels. Mr. Biden has said he is still committed to his climate agenda, but that because the US will continue to rely on fossil fuels in the short term, his administration must take steps to lower prices to help consumers.

In January on his first day in office, President Biden revoked a permit for the Keystone XL oil pipeline. His administration has sought to incentivise wider use of electric vehicles and curb new drilling on federal land, though the administration moved forward this week with a massive lease sale for oil and gas drilling in the Gulf of Mexico.

Mr. Biden’s letter comes after National Economic Council Director Brian Deese urged Ms. Khan in August to look into “divergences between oil prices and the cost of gasoline at the pump.” In response, Ms. Khan said the commission would examine potential unlawful business practices in the oil and gas markets. She said she would take steps to deter unlawful mergers in the industry, “identify additional legal theories” to challenge retail fuel station mergers that allow large companies to buy family-run businesses, and investigate alleged abuses in the franchise market.

The Wall Street Journal