Crude Manipulation

In Katrina's wake, the supposed oil shortage and suspicious gas price hikes

Supposedly gas prices are going through the roof because of an oil shortage. The hurricane made things worse. But it looks increasingly as though this is an out-and-out scam. The industry is awash with crude oil. However, it has reduced refinery output because selling refined products has been a money loser. Now, reports are suggesting the big companies worked together to slow refining capacity, and even tried to take independent refiners off the market, in their gambit to run up prices.

The Foundation for Taxpayer and Consumer Rights, a California consumer group dealing with utility and energy issues, has released a series of internal oil company memos that strongly suggest the industry conspired to withhold refined products to drive the price up. In the past the industry often blamed reduced refining on environmental regs that forced the companies to take refineries out of production. Memos from Mobil, Chevron, and Texaco in the 1990s (the firms subsequently merged) demonstrate the different ways the companies closed down refining capacity and drove independents out of the market. And according to the foundation, they were helped along by the American Petroleum Institute, the industry trade group. In one 1996 memo, Mobil suggested preventing a smaller refinery from flooding the market by "buying all their avails and marketing it ourselves." An internal Texaco memo indicated that the industry thought "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)"

The government currently is pushing refiners to increase production wherever possible because of the hurricane, even at risk of disregarding pollution standards, according to a report last week in the Financial Times. In addition, a refiner in Houston tells the Financial Times, the government is telling refiners to forget about doing maintenance: "Run the refinery as high as you can and avoid all non-priority maintenance in the next four to six weeks."


Who did or didn't do what?

As part of its damage control, the White House is trying to pit Louisiana governor Katherine Blanco against New Orleans mayor Ray Nagin, suggesting, among other things, that Bush wanted to federalize the state National Guard but that Blanco delayed him doing so, and that Blanco and Nagin had fled New Orleans before the storm hit. Sorting out who did what and when is hard to do. Here's a basic timeline prepared by the American Progress Action Fund, a D.C. public-interest group run by John Podesta, Clinton's former chief of staff:

Friday, August 26: Blanco declares state of emergency. Gulf states begin requesting additional forces, according to Lieutenant General Russel Honore, commander of joint task force Katrina.

Saturday, August 27: Katrina is upgraded to a Category 3 hurricane at 5 a.m. Blanco asks Bush to declare a state of emergency in Louisiana.

The feds declare it, and FEMA and the Department of Homeland Security are given full authority to respond. The White House says: "Specifically, FEMA is authorized to identify, mobilize, and provide at its discretion, equipment and resources necessary to alleviate the impacts of the emergency."

Sunday, August 28: Katrina becomes a Category 4 hurricane at 2 a.m. By 7 a.m., it's a Category 5. That same day, the Lafayette Daily Advertiser warns that levees may be breached: "Forecasters feared Sunday afternoon that storm-driven waters will lap over the New Orleans levees when monster Hurricane Katrina pushes past the Crescent City tomorrow." At 9:30 a.m., Mayor Nagin, for the first time in the city's history, orders a mandatory evacuation. At 4 p.m., the National Weather Service issues a special warning: "In the event of a category 4 or 5 hit, most of the area will be uninhabitable for weeks, perhaps longer. At least one-half of well-constructed homes will have roof and wall failure. All gabled roofs will fail, leaving those homes severely damaged or destroyed. Power outages will last for weeks. Water shortages will make human suffering incredible by modern standards."

In the afternoon, Max Mayfield, director of the National Hurricane Center, warns Bush, FEMA head Mike Brown, and DHS chief Michael Chertoff that the levees may not hold. The story is reported in The Times-Picayune and in Florida's St. Petersburg Times. Mayfield was later quoted as saying: "We were briefing them way before landfall. It's not like this was a surprise. We had in the advisories that the levee could be topped."

Late that night, a levee is breached. About 30,000 evacuees gather at the Superdome.

Monday, August 29: At 7 a.m. Katrina, now a Category 4 storm, makes landfall. By 8 a.m., Nagin tell NBC's Today that a levee has been breached: "I've gotten reports this morning that there is already water coming over some of the levee systems. In the lower Ninth Ward, we've had one of our pumping stations to stop operating, so we will have significant flooding. It is just a matter of how much."

During the morning, the president calls Chertoff to discuss not the storm, but immigration. According to a White House account, Bush says, "I knew people would want me to discuss this issue [immigration], so we got us an airplane on, a telephone on Air Force One, so I called him. I said, 'Are you working with the governor?' He said, 'You bet we are.' " At 11 a.m., Bush is in Arizona, talking about Medicare drug benefits. By late morning, the "hurricane-proof" 17th Street Canal levee gives way. At 10:30, FEMA's Brown asks DHS to send 1,000 employees into the region. He gives them two days to get there. Brown's memo to Chertoff describes Katrina as a "near catastrophic event." At 4 p.m. Bush is at a California senior center to talk about the Medicare drug benefit. That evening, Rumsfeld, who is in charge of the Army Corps of Engineers, takes in a San Diego Padres baseball game.

Tuesday, August 30:Bush speaks at the naval base at Coronado in San Diego. By midday, Chertoff first becomes aware a levee in New Orleans has been breached. "It was on Tuesday that the levee—may have been overnight Monday to Tuesday—that the levee started to break," he later told Meet the Press. "And it was midday Tuesday that I became aware of the fact that there was no possibility of plugging the gap and that essentially the lake was going to start to drain into the city."


Additional reporting: Isabel Huacuga

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